The New Zealand dollar dipped to a five-month low today as electoral coalition talks continued in Wellington.

The kiwi currency has fallen from US73.28c on Friday before the election to close at US70.75 at 5pm today.

Political uncertainty while the country waits for NZ First and Winston Peter's to complete coalition talks was just one factor at play, said ANZ economist Philip Borkin.

"It's always difficult with the dollar to disentangle what the main driver is," he said. "Yes election uncertainty is one thing. The stronger US dollar sentiment is another."


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The US dollar has been rising in the past four weeks on the back of stronger economic data and expectations that the Federal Reserve will lift interest rates in December.

But the New Zealand dollar had been hit harder than some currencies and was off against the Australian dollar, Borkin said.

The kiwi was trading at around A91c yesterday, down from A96c in June.

Beyond the immediate election uncertainty there was also some concern that the broader economic outlook was weakening, he said.

"We've seen confidence ease off and the housing market has been soft, and our view is that could continue into the later part of the year and into the new year as well."

"So the currency is actually responding to that risk profile, which I think is an encouraging thing. It's what you want to happen when things soften, it's like an automatic stabiliser."

ANZ economists today published a report called The Waiting Game in which they noted that there was "nothing bad per se about change" as long as it was communicated well.

"We've seen massive change globally and those economies have struggled on," Borkin said. "One thing that we are mindful of is if there was an extended period of uncertainty - if NZ First decided to sit on the benches and deal with things on an issue-by-issue basis - that would be an uncertain period to navigate."

Business and consumer sentiment looked set to be key indicators for the economy and until negotiations were completed it was hard to predict what effect the new government would have on that, he said.

ASB economists also published an outlook - All Eyes on Winston.

"It could be a rocky road for NZ financial markets as we head towards Thursday, with a particular risk of volatility if coalition talks end up being extended," they noted.

"We also see more risk of financial market volatility if a Labour-Greens-NZ First coalition was successful, simply because there is more uncertainty associated with a Labour-led government (including markets being less familiar with the people and policies)."

Meanwhile, the share market remains untroubled by political uncertainty, with the S&P NZX-50 index surging through 8000 points to a new record.

The market has now risen 231 per cent since 2009 in the wake of the global financial crisis. It is up 14 per cent so far this year.