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New Zealand dollar slips to 4-month low on political tug of war; Aussie stays weak

[SYDNEY] The New Zealand dollar sank to four-month lows on Monday after a final vote count in the country's tight general election failed to identify a clear winner, while its Australian cousin loitered near a 3-month trough.

The New Zealand dollar declined for a third straight session to US$0.7050, a level not seen since May 30, from US$0.7090 on Friday. It was last down 0.3 per cent at US$0.7071, having fallen in eight out of the last ten sessions.

The losses have largely come on election-related uncertainties at home, with the near-term fate of the kiwi likely determined by the composition of the ruling coalition which is expected to be known this week.

The final vote count released over the weekend showed the ruling centre-right National Party lost some ground to the centre-left Labour-Green bloc, compared with the preliminary tally announced on the Sept 23 poll day.

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That means the small nationalist New Zealand First Party remains in a kingmaking position.

National is sitting on 56 seats and Labour and Greens together have 54 seats, leaving them both reliant on NZ First's nine seats to meet the 61 seats needed for a majority in parliament in New Zealand's proportional representation system.

"The downward bias for the NZD...is likely to continue following the tallying of the final vote count," said Con Williams, economist at ANZ Bank. "Volatility could pick up on government negotiation headlines as the week progresses."

NZ First's Winston Peters is continuing talks on Monday with both Labour and National as the clock counts down to its self-imposed deadline of Oct 12 to announce which party it would support.

Mr Peters told reporters that a morning meeting with the National Party was "great" and that he would meet with the ruling party again later in the day.

Economists say the kiwi would likely rally if Prime Minister Bill English emerges victorious but a Labour win might lead to further losses in the currency with curbs on immigration and trade renegotiation on its agenda.

Across the Tasman Sea, the Australian dollar hovered at US$0.7777, from a near three-month trough of US$0.7733.

The currency has tumbled 3.5 per cent since hitting a more than two-year peak of US$0.8125 last month as US policymakers look to unwind stimulus, a contrast to Australia where rates are expected to remain at record lows for at least another year.

The Aussie posted its fourth straight weekly decline on Friday.

New Zealand government bonds gained, sending yields about 2 basis points higher at the long-end of the curve.

Australian government bond futures were mixed, with the three-year bond contract flat at 97.850. The 10-year contract slipped 1 basis points to 97.1450.

REUTERS