Narrowing polls have already led markets to price in more risk that Republican candidate Donald Trump might defeat his Democratic rival Hillary Clinton, perhaps remembering the turmoil that followed the surprise Brexit vote.
An average of polls compiled by the RealClearPolitics website showed Mrs Clinton just 1.7% ahead of Trump nationally. A Reuters/Ipsos daily tracking poll released late last week showed Mrs Clinton ahead by 0.6% among likely voters.
Investors generally view Mrs Clinton as a known quantity but there is deep uncertainty about what a Trump win might mean.
The New Zealand Institute of Economic Research (NZIER) says it looks more likely Mr Trump may be elected as president of the US.
Predictions late last week gave Mr Trump a 20% to 30% chance of victory. The numbers are changing daily and no-one knows what scandals may yet surface in the last few days of the campaign.
The election will be held on November 8.
"We are also wary most commentators didn’t give Brexit a great chance of occurring but were proven wrong."
Financial markets generally did not like uncertainty, NZIER said. If Mr Trump was elected president, it was difficult to see it being anything but a huge headache for markets.
"Moreover, the way he has managed his campaign and the people associated with it suggests there might be a degree of chaos about the process of selecting and confirming key players in a Trump administration."
The immediate impact would likely be seen in credit conditions, the exchange rate and the US sharemarkets, NZIER said.
If US and international financial markets perceived the economic and political outlook to be more worrisome under a Trump presidency, funding costs could rise as lenders became more risk averse.
Because markets are linked internationally, that could flow through to New Zealand retail interest rates, making household and business borrowing more expensive.
As was seen when Great Britain voted to leave the European Union, currency markets could also get jittery. Ordinarily, market concerns about the US economy’s competitiveness could be expected to lead to a lower US dollar in the short term, as happened with the UK pound.
However, the status of the US dollar as a safe haven in times of uncertainty might cancel the depreciation effect as investors shied away from more peripheral currencies, such as the New Zealand dollar.
"The net impact of these effects is difficult to gauge but it is likely to be a bumpy ride for currency markets."
The NZIER expected the US sharemarkets were largely assuming a victory for Mrs Clinton. If Mr Trump beat the odds and won, a large drop in equity markets was expected, reflecting concerns about the impact Mr Trump’s economic policies would have on businesses and the US economy more generally.
Those concerns could be mitigated to some extent by reassurances from the Federal Reserve it would step in to provide support to the US economy if required.
At the very least, the Fed would hold off lifting its policy rate this year, given the increased uncertainty over the US economic outlook. In combination, those effects all pointed towards market volatility, NZIER said.
"New Zealand firms will need to prepare for this and either take appropriate hedging cover or hold firm, like Trump’s comb-over, and ride it through."
Softer US growth would reduce demand for New Zealand exports.
The US was a crucial market for many New Zealand firms. The country exported $8.4 billion in goods and services to the US in 2015, accounting for 12% of total export revenue. Key products were beef ($1.6billion), dairy ($1billion), wine ($432million), lamb ($288million) and wood ($182million). The US provided 240,000 visitors to New Zealand in 2015.
Despite Mr Trump’s assurances about how great or terrific the economy would be under his watch, his policy prescriptions did not warrant a great deal of optimism, NZIER said.
There had been no reputable assessment of how his "bright ideas" would generate sustained productivity and living standards growth.
One estimate suggested his trade policies alone — namely imposing 35% to 45% tariffs on Mexican and Chinese imports — could result in the loss of up to 4.8million US jobs.
A weaker economy was not great news for New Zealand firms and would have negative implications for the global economy.
Mr Trump has labelled free-trade agreements such as the Trans Pacific Partnership (TPP) and the North American Free Trade Agreement (Nafta) as "horrible", "terrible", and "disastrous". His objections were not always clear or coherent but the consistent message was Mr Trump would seek to rip up the agreements and renegotiate them.That appeared to mean securing more benefits for the US in exchange for giving lower benefits for everyone else, NZIER said. Other parties to the agreements might not be overly keen to renegotiate along those lines.
The long-discussed Asia-Pacific free trade area for Apec economies, would struggle to move ahead — not least because both the US and China were Apec members.
Mr Trump was not keen on the World Trade Organisation either, so multilateral efforts to liberalise trade could be hampered.
"If Trump were able to fulfil his campaign promises on trade and foreign policy, he would be sending a clear message to the rest of the world: ‘We plan to do whatever we please and damn the consequences for the rest of you’."
There was still plenty of debate about how much power Mr Trump would actually have if he were to take the Oval Office, given the checks and balances provided by the Constitution.
There was a rift between Mr Trump and the Republican Party and a risk the Democratic Party might win control of the Senate.
However, the sentiments expressed during the campaign and the uncertainty that would be created would be deeply disturbing for a small economy like New Zealand which had historically been one of the big winners from a liberal global trade and economic integration environment, the NZIER said.
At a glance
• Financial markets uneasy leading into the US presidential election.
• Currency jitters expected if Donald Trump was to win.
• Trade deals likely to suffer under a Trump presidency.
• NZ has much to lose from Trump win if he kept his promise of introducing high tariffs.
