16 Sep 2013

Summers' withdrawal helps dollar and stocks

7:13 pm on 16 September 2013

The New Zealand dollar jumped 1c today after Larry Summers withdrew from the race to be the next chairman of the world's most powerful central bank, the Federal Reserve.

ANZ Bank head of foreign exchange Sam Tuck said investors were betting this will mean US monetary policy was likely to remain supportive for longer, boosting the attractiveness of New Zealand's relatively high interest rates.

"The New Zealand dollar is yielding basically 2.5% more than the US dollar, even though the US interest rates are set at 0.25% in the short-terms rates and longer," Mr Tuck said.

"So for that reason, it means that there's more time for people to earn the interest advantage that New Zealand has and they don't need to be worried so much about losing out on yield available in the US space."

Just after 5pm, the New Zealand dollar was trading at 81.86 US cents, down from the day's high at 82.27. But it was little changed against the currencies of other major trading partner, selling for 87.79 Australian cents, 51.31 pence, 61.26 euro and 80.99 yen.

Withdrawal helps stocks

Mr Summers' withdrawal also helped to propel stocks higher today. The NZX Top 50 Index jumped 43 points, or nearly 1%, to 4694.

Harbour Asset Management chief executive Andrew Bascand said Mr Summers was one of several factors pushing shares up today.

"I guess he was the bookmakers' favourite and he was probably viewed as a more hawkish candidate," Mr Bascand said.

"The markets seem to be positive regarding the opportunity for monetary policy to be a bit more supportive.

"The additional factor today is that this is really quite a big dividend week so investors are going to receive income this week and I think they're pre-investing some of that income in the market.

"So we're seeing the market quite broadly up today."

Michael Hill rose 5c to $1.48, Kathmandu shares climbed 10c to $3, Trade Me gained 9c to $4.55 and Diligent advanced 12c to $5.84.