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Kiwi businesses look to hedge as expected NZD peak nears

Kiwi businesses look to hedge as expected NZD peak nears

Businesses expect the NZD to peak at 0.808 by March 2014 and then ease over the coming year.
Increased interest in hedging to manage forex risk among importers and exporters.
Options making up a significant proportion of hedging activity for the small number of businesses that use it.

The latest ASB Kiwi Dollar Barometer finds interest in hedging has continued to increase across importers and exporters. The Barometer revealed that 83.6% of all businesses surveyed have plans to hedge to manage foreign exchange risk.

ASB Chief Economist Nick Tuffley says, “A greater proportion of importers and exporters are indicating they plan to hedge their foreign exchange exposures. This suggests businesses are becoming more engaged with managing their foreign exchange risks. It is likely the recent strength in the NZD has seen exporters look to protect themselves against further increases in the NZD, even if their core view is that the currency will ease over the year ahead.”

Businesses continue to expect the NZD/USD to peak at 0.808 in March 2014, before easing to 0.765 by the end of next year. Although importers remain more bullish on the currency compared to exporters, the difference in NZD expectations has narrowed.

The Barometer finds the number of businesses that use options to hedge foreign exchange risk is very low across the sample. However, of the businesses that do use this tool, it makes up a fairly substantial proportion of their hedging.

Mr Tuffley concludes that for medium and large-sized businesses that use options, the tool is making up a significant part of their hedging activities. “The results of the Barometer suggest there is scope for small businesses to be made more aware of the use and benefits of options to help in making more well-rounded hedging decisions.”


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