The New Zealand dollar tumbled to a 4-1/2 month low on Thursday after the left-leaning Labour Party won the support of a minor nationalist party to form a ruling coalition, following an inconclusive election last month.

Winston Peters, the leader of the small New Zealand First party which emerged as the kingmaker from the September 23 vote, pledged to back Labour, ending weeks of political guessing games.

The New Zealand dollar extended early losses after the news. It slid as much as 1.4 per cent to $0.7047, a level not seen since late May and the biggest percentage decline since November 2016. The currency has now fallen 3.7 per cent since the vote.

Investors are concerned a Labour win could be negative for the New Zealand economy and currency due to the party's hardline policies on immigrants and foreign ownership.

Before the election, the currency tended to strengthen when National, which had been in power for nearly a decade, rose in opinion polls and fall when Labour gained ground.

“It was always likely that the knee-jerk reaction to the news for Winston Peters going with Labour would be negative," said Ray Attrill, currency strategist at National Australia Bank.

“It's too early to draw any conclusion on what the economic or policy landspace might look like under this new government.”

NZ First has more in common with Labour on the policy front, as both want to rein in immigrants and foreign ownership, change certain trade deals and adjust the central bank's mandate.

Attrill said he expects the changes to the Reserve Bank of New Zealand's target agreement to be “cosmetic” in pratice, without any potential policy implications.

Across the Tasman Sea, the Australian dollar briefly popped up to $0.7871, after official labour data came in stronger than expected. It was last a touch firmer at $0.7858.

Australia enjoyed another month of solid job growth in September, with the annual pace of gains sprinting ahead to the fastest in almost a decade and nudging the unemployment rate lower.

Data on Thursday showed the unemployment rate slipped to 5.5 per cent, compared with analysts' expectations for a steady 5.6 per cent.

“We saw a kneejerk upward reaction on the release but then the market wants to see the increase in jobs translating to higher wages growth and inflation,” said AMP Chief Economist Shane Oliver.

“And then the Chinese data wasn't good enough to excite in either direction.”

China's industrial output growth accelerated to a three-month high in September, while fixed asset investment growth continued to decline, falling to the slowest pace since December 1999.

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