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NZ dollar near 4-month lows on election negotiations; Aussie edges up

[SYDNEY] The New Zealand dollar hovered near four-month lows on Tuesday on concerns the country's opposition Labour Party stood a fair chance at forming a ruling coalition after a final vote count turned the country's nail-biting election in its favour.

The New Zealand dollar held at US$0.7065, within spitting distance of Monday's low of US$0.7052 - a level not seen since late May. The kiwi has fallen in eight out of the last 10 sessions.

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

Labour and the Greens now have 54 seats giving them greater bargaining power, analysts said.

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National has 56 seats while the small conservative New Zealand First has cornered nine seats - leaving it in a pivotal position to meet the 61 seats needed for a majority in parliament.

New Zealand First boss Winston Peters is holding multiple talks with National and Labour leaders and is expected to announce his allegiance later this week.

"In our view, the weekend transfer of two seats makes it more likely that New Zealand First will now form a coalition government with Labour/Green rather than with the governing National party," said Sean Keane, a director at Triple T Consulting.

"Their combined representation will provide that coalition with a three-seat majority in the New Zealand Parliament, and that should be more comfortable for Peters than the one seat majority that such a coalition would have held previously."

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

Across the Tasman, the Australian dollar was a touch firmer at US$0.7768 after three straight days of losses, but still within sight of a three-month trough of US$0.7733 set last week.

The Aussie was supported by a private survey that showed Australian business conditions held at its highest since early 2008 in September with strength in construction and mining lifting sales and profits.

The currency has slid 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 months to come.

New Zealand government bonds slipped, sending yields 2.5 basis points higher at the long-end of the curve.

Australian government bond futures eased, with the three-year bond contract down two ticks at 97.84. The 10-year contract fell one tick to 97.1400.

REUTERS