By ELLEN READ markets writer
The New Zealand dollar hit an 11-week low of 46.25USc this week amid continued worries about US equity weakness and the strength of global economic growth.
The concerns have prompted repatriation of funds into the US dollar, a typical response in times of uncertainty, which reduces demand for the kiwi.
Bank of New Zealand currency strategist Stu Ritson said tomorrow's election and pending rewording of the policy targets agreement between the Government and the Reserve Bank were playing second fiddle to the international issues.
The sharp rise in risk aversion and a growing perception of concern about global growth were weighing on the kiwi, he said.
His WestpacTrust counterpart, Johnathan Bayley, agreed. He said "at times this week it's been difficult to remember there is a general election at the end of the week".
Although Labour is widely expected to retain power, the make-up of the future Government is uncertain as it may have to rely on coalition partners.
Bayley said a coalition government would reduce the risk of fiscal slippage as increased scrutiny around the Cabinet table could temper overspending.
The kiwi has surged since February, when it was trading at about 42USc. Buoyed by interest rate differentials, it rose quickly and steeply to peak just above 50USc in late June.
Despite the current blip, forecasters are still picking the kiwi to regain the 50USc level by the end of the year.
The kiwi, which has had the weight of speculative positioning on its side for the past two months, is now seeing the dark side of its fair-weather friends, the ANZ Bank said.
Equity market losses have sparked a liquidation of foreign exchange positions around the globe and while further losses down towards 45.25USc are possible, the kiwi looks to have found a short-term base and consolidation is favoured, the ANZ said.
ANZ senior foreign currency exchange manager Richard Marshall said the election was a factor.
He said Labour appeared likely to be returned to power in tomorrow's general election, but might have to negotiate with minor parties to form a government.
"We probably will be governmentless on Monday, so it's going to make [the kiwi] vulnerable for a little while."
US jitters reverse kiwi surge
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