ASB Kiwi Dollar Barometer
EMBARGOED UNTIL 0500 WEDNESDAY, SEPTEMBER 10, 2014
Businesses predict further softening of the NZD
• Businesses expect the NZD to head back below 80 cents by September 2015
• The proportion of businesses intending to hedge is steady, while the plans of exporters and importers continue to diverge
• The majority of FX flows are through the forward market, followed by spot transactions
Businesses are expecting the NZD to continue to ease according to the latest ASB Kiwi Dollar Barometer.
“Regardless of business size or type, there is a broad expectation that the NZD will continue to ease and will be near 0.8100 in March 2015,” says ASB Chief Economist Nick Tuffley. “This is nearly 5 cents lower than the expectation from the June survey.
“Survey respondents expect the NZD to be below 0.8000 in September 2015 which is consistent with ASB’s own September 2015 quarter-end forecast of 0.7900. The survey period included the July RBNZ Official Cash Rate Review, and the NZD did drop quite sharply over that week, which may have influenced respondents’ confidence that the NZD is finally easing,” Mr Tuffley says.
The Barometer finds that the proportion of businesses intending to hedge is holding steady, but there is a continued divergence between importers’ and exporters’ intentions.
“This quarter, the proportion of importing firms planning to hedge their FX exposures lifted, and within that group planning to hedge, the percentage of their FX flows being hedged is also getting higher. In contrast, the pattern of declining interest to hedge amongst exporters continued. However, when exporting firms are hedging their FX exposures, the proportion of FX hedged has lifted.”
This quarter’s Kiwi Dollar Barometer also surveyed businesses about FX options and what proportions of FX flows were allocated to options, as well as forwards and spot trading.
“A significant proportion of firms have not investigated using options, and of those who have, a key reason for not using options is price. But the survey found that despite a reasonably high proportion of businesses’ citing reasons to be reluctant to use options, their actual use in New Zealand appears broadly in line with global FX turnover data,” Mr Tuffley says.
Note to editors
The ASB Kiwi Dollar Barometer tracks exporters’ and importers’ exposures to foreign exchange risk, through surveying businesses with annual turnover of at least NZ$1 million.
The Barometer also surveys businesses’ expectations for the NZD/USD and businesses’ hedging plans for managing foreign exchange risk. Hedging involves reducing the risk of adverse currency movements to a business by using instruments such as FX forwards. For example, exporters can protect themselves from an appreciation in the NZD, while importers can protect themselves from depreciation in the NZD with the use of these instruments.
For the September 2014 edition of the ASB Kiwi Dollar Barometer, East & Partners interviewed 403 businesses turning over at least NZ$1 million per year. The interviews were conducted between July 21, 2014 and July 28, 2014. Businesses were asked a range of questions about their exposure to and views about the NZD.
The full ASB Kiwi Dollar Barometer report is attached, and will be available online on September 10, 2014.