* NZ dollar extends fall after Thursday’s 1.7 pct slide
* Kiwi under pressure after Labour forms ruling coalition
* Focus on possible changes to RBNZ’s mandate
* Investors await Trump’s Fed chair decision
By Masayuki Kitano
SINGAPORE, Oct 20 (Reuters) - The New Zealand dollar hit a five-month low on Friday, dogged by uncertainty over the new government’s economic policies, while the dollar held firm as traders awaited President Donald Trump’s decision on the next Federal Reserve chair.
The New Zealand dollar fell 0.7 percent to $0.6983. It touched a low of $0.6980 at one point, its weakest level since May.
The kiwi had slid 1.7 percent on Thursday for its biggest one-day percentage loss since June 2016.
New Zealand’s next prime minister will be Jacinda Ardern, whose Labour party won the support of the small, nationalist New Zealand First Party on Thursday to form the government, spelling big changes for the country’s economy.
The Labour party has said it wants to add employment to the central bank’s mandate, which would mark a big change for the Reserve Bank of New Zealand.
While the Labour party and New Zealand First Party have floated some different ideas regarding monetary policy, the overall direction seems to be a possible preference for a weaker New Zealand dollar, said Teppei Ino, analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.
“The common thread seems to be a preference for New Zealand dollar weakness,” Ino said, adding that monetary policy of New Zealand’s central bank may turn more dovish than before.
The U.S. dollar edged higher against the yen and the euro, with the euro slipping 0.2 percent to $1.1830.
On Thursday the euro had gained a lift as U.S. Treasury yields slipped back and as the dollar weakened following a report that President Donald Trump was leaning toward Jerome Powell as the next chair of the Federal Reserve.
Powell, a Federal Reserve governor, is favoured by Treasury Secretary Steven Mnuchin, a story from Politico said. He is considered less hawkish than other choices on Trump’s short list like former Fed Governor Kevin Warsh and economist John Taylor.
Still, traders are reluctant to bet too aggressively in one direction until they see Trump’s decision, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
“It’s not as if this is a done deal and it’s hard to bet 100 percent on it,” Okagawa said, referring to the Politico report.
Against the yen, the dollar rose 0.4 percent to 113.00 yen.
Reporting by Masayuki Kitano; Editing by Sam Holmes