Kiwi surges as Fed prepares to print billions

By Christopher Adams, agencies

The New Zealand dollar surged to a six-month high against the greenback yesterday after the United States Federal Reserve signalled it would pump billions into the US economy to boost growth and reduce unemployment.

The US central bank said it would spend US$40 billion a month buying mortgage securities in response to an economy that is too weak to decrease a high jobless rate.

It will also keep buying bonds until the job market shows substantial improvement.

News of a third round of so-called quantitative easing promoted a fall in the greenback, while US equities and "risk currencies" like the New Zealand and Australian dollars rallied.

The kiwi dollar hit US83.56c just before 4pm, up from US81.98c at market close on Thursday.

Westpac senior market strategist Imre Speizer said the New Zealand dollar's rally was a direct result of the announcement from the US Federal Reserve.

"The open-ended nature of the QE [quantitative easing] was the big thing - that they'll just keep buying bonds and printing money until employment picks up," he said.

"It's a fairly strong outcome for markets."

Speizer said the kiwi could go as high as US84.70c over the next few weeks.

The New Zealand sharemarket had a more muted response to the news from the United States, with the NZX-50 index closing up 6.3 points, or 0.2 per cent, at 3792.34 last night.

"To a certain extent the market had priced [the Fed's announcement] in," said James Smalley, of Christchurch sharebrokers Hamilton Hindin Greene.

The Federal Reserve also extended its pledge of near-zero interest rates into 2015, and promised to keep "highly accommodative" monetary policy in place even after the economic recovery strengthens.

It was the action investors had been hoping for.

"They're saying that the punch bowl, the fuel for the economy, isn't going away - it's going to be here as long as you need it," said Tony Fratto, managing partner at Hamilton Place Strategies, a policy consulting firm in Washington, DC.

In New York the Dow Jones Industrial Average closed up 206.51 points, or 1.55 per cent, at 13,539.86 - its highest close since the last days of December 2007, the first month of the recession.

The broader Standard & Poor's 500 index closed up 1.63 per cent points at 1459.99, also its highest since December 2007.

The Nasdaq composite index, which has been trading at its highest levels since 2000, finished trading up 1.33 per cent.

David Abuaf, chief investment officer at Hefty Wealth Partners, said the Fed package was just what the economy needed.

He said he expected investors to keep shifting from safer assets such as government bonds to stocks.

That could push stock prices higher, kicking off a cycle of increased wealth and increased spending.

"People will feel more confident, consumers will buy more goods and GDP growth will increase," Abuaf said.

Asian stocks also surged yesterday.

Hong Kong's Hang Seng index was up 2.7 per cent just before 5pm, while Japan's Nikkei had lifted 2.2 per cent and Australia's S&P/ASX200 was up 1.25 per cent.

- NZ Herald

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