REPEAT: NZ New Coalition Govt To Put Downward Pressure On NZD

Repeats Story Initially Transmitted at 06:59 GMT Oct 19/02:59 EST Oct 19

--Labour Leader Jacinda Ardern Set to Form Government with NZ First

By Sophia Rodrigues

     SYDNEY (MNI) - New Zealand's Labour Party looks set to form the country's

new government after the New Zealand First party-- which held the balance of

power in last month's election outcome -- announced it would form a coalition

with Labour, according to media reports.

     The move looks set to keep downward pressure on the exchange rate and slow

net migration.

     The move won't have an impact on the Reserve Bank of New Zealand's monetary

policy model, which is determined by the level of the overnight cash rate, as NZ

First did not receive support to change the model in the coalition negotiations.

     The announcement was made on Thursday by Winston Peters, the leader of NZ

First, and will pave the way for Labour leader Jacinda Ardern to become the new

prime minister. 

     In the general elections held on September 23, the National Party won 44.4%

of votes, followed by Labour with 36.9% votes, NZ First with 7.2% and the Green

Party with 6.3%.

     According to Peters, Labour will form a coalition government with NZ First,

with the Greens likely to be outside the government but in support of it.

     Peters has always supported a lower New Zealand dollar. In reply to a

question at a media conference Thursday, he reminded that "we live or die by

exporting."

     So if external agencies like the International Monetary Fund are saying the

New Zealand dollar is overvalued, then the political system should respond to

it, Peters argued.

     Peters also suggested the government will work to slow net migration,

putting emphasis on skills and excellence, as well as genuine export education,

for immigrants.

     The large number of unskilled immigrants are the concern, Peters said. 

     Peters said he didn't secure support to change the RBNZ's monetary policy

model to his preference for a Singapore model, where policy works by tweaking

the exchange rate.

     Peters said his decision to partner with Labour was mainly made for

economic reasons. According to Peters, an economic correction is looming in New

Zealand and will lead to a slowdown in the economy.

     The New Zealand dollar fell in response to the news. If the exchange rate

fall is sustained, as many expect, then it may provide some respite to the

economy. 

     However, offsetting this would be the slowing in net migration. The recent

strength of demand in the economy has been due in good part to strong migration

flows in recent years.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com