NZ dollar hits four-month high after Larry Summers exits race for Fed chair

The New Zealand dollar rose to a four-month high in local trading after former US Treasury secretary Larry Summers pulled out of the race to head the US Federal Reserve, ahead of the first expected tapering of the US central bank's stimulus later this week.

The kiwi rose as high as 82.27 US cents, trading at 81.88 cents at 5pm in Wellington from 81.34 cents at 8am and 81.24 cents on Friday in New York. The trade-weighted index advanced to 76.66 from 76.35 last week.

Summers withdrew from the contest to replace outgoing Fed chair Ben Bernanke, leaving the central bank's vice chair Janet Yellen and former Fed vice chair Don Kohn vying for the job. Summers was seen as the candidate with the most commercial acumen, who would have removed the Fed's stimulus faster than the other two. The Fed is expected to start rolling back its bond buying programme this week after it completes its two-day policy meeting on Wednesday in Washington.

"He would have gone quicker and harder in unwinding," but "there's still going to be some sort of tapering by the end of the week," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi's drifted off its Larry-induced jump" and should find support around 81.75 US cents, he said.

A BusinessDesk survey of nine traders and strategists predicts the local currency may trade between 79.50 US cents and 83.50 cents this week. Five expect the currency to advance while four expect it to decline.

The Fed meeting is the major event risk this week with traders expecting the US central bank to trim its US$85 billion monthly asset purchases by between US$10 billion and US$20 billion.

Local figures later this week are expected to show New Zealand's economy grew 0.1 percent in the June quarter as the effects of the country's worst drought in seven decades weighed.

New Zealand's property market slowed a little in August as sellers grew wary of loan restrictions on low equity mortgages, with a dip in the number of sales, while a survey showed activity in the country's services industry grew at a slower pace last month.

The kiwi rose to 80.98 yen at 5pm in Wellington from 80.72 yen on Friday in New York, and traded at 87.77 Australian cents from 87.84 cents. It rose to 61.25 euro cents from 61.10.

(BusinessDesk)