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New Zealand dollar punctured by politics, Australian dollar up on euro

[SYDNEY] The New Zealand dollar took a knock early on Monday after a general election left no single party in power, leaving investors facing likely weeks of political horse-trading before a government is formed.

The New Zealand dollar was trading down 0.6 per cent at US$0.7296 and was set to test support around US$0.7280.

Prime Minister Bill English's National Party won the largest number of votes in Saturday's election but not enough seats to rule outright, giving the nationalist New Zealand First Party the balance of power.

The results so far secured 58 seats for National in the 120-seat parliament and 45 for Labour. New Zealand First (NZF) has nine seats and the Green Party has seven.

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"At this juncture, it is unclear which coalition is likely to emerge, or how long it will take to form - the range since 1996 being one week to six weeks," said Imre Speizer, an analyst at Westpac.

The presence of New Zealand First was a sticking point for markets, said Mr Speizer, since some of the party's policies were unpopular with investors.

Those proposals include limiting immigration, tighter restrictions on foreign investment, and reforming control of the Reserve Bank of New Zealand with an aim of making the local currency more exporter-friendly.

The Australian dollar also gained on the kiwi, edging up to NZ$1.0880 and off a six-week low around NZ$1.0774.

The Aussie was a fraction softer on its US counterpart at US$0.7949 but gained on the euro after a German election also proved inconclusive.

Chancellor Angela Merkel won a fourth term in office on Sunday but will have to govern with a far less stable coalition in a fractured parliament after her conservatives shed support to a surging far right.

Coalition building could take months as Dr Merkel's only straightforward path to a majority in parliament would be a three-way tie-up with the liberal Free Democrats (FDP) and the Greens - an arrangement untested at national level.

That saw the euro ease to A$1.4970, having been as high as A$1.5108 on Friday.

REUTERS