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Businesses lower their NZD expectations

Embargoed media release
ASB Kiwi Dollar Barometer


Businesses lower their NZD expectations

• Businesses expect the NZD/USD to be below $0.65 in a year

• More exporters are now forecasting greater foreign exchange turnover

• Firms planning to hedge are expected to take greater cover

Businesses are expecting a modestly lower NZD/USD a year from now, according to the latest ASB Kiwi Dollar Barometer.

The quarterly survey of internationally-trading businesses indicates they expect the NZD/USD to be trading at 0.6450 at the end of March 2017.

Respondents to the survey, a mix of importers and exporters, have lowered their year-ahead expectations only slightly since the previous quarter’s survey (0.65), possibly reflecting the relatively flat exchange rate trend in recent months.

Three months ago, respondents were forecasting a NZD/USD of around $0.670 by the end of March 2016. Currently, the rate, at 0.6760, is very near that expectation.

ASB chief economist Nick Tuffley says the NZD has proved to be very resilient, even in the face of further OCR cuts by the Reserve Bank.

“In contrast to the survey results, we see very limited scope for the NZD/USD to soften further,” Mr Tuffley says.

Risk management improving

ASB’s Kiwi Dollar Barometer offers insight on how businesses view the exchange rate, respond to currency movement and manage their foreign exchange exposure.

Foreign exchange is a risk for businesses, but there are tools to help them manage it, Mr Tuffley says.

“Generally, we’re seeing New Zealand businesses getting better at hedging over time.

“The degree to which businesses protect themselves from exchange rates ultimately flows through to consumers by influencing the speed at which retail prices are impacted. Businesses’ resilience to exchange rate movements can also influence their investment and employment decisions.”

Exposure high a year ahead

As the NZD has fallen over 2015, the length of time businesses are hedging for has also decreased.

Across all the businesses surveyed, 54.2% of hedging was for duration of less than 6 months and only 8% of hedging was beyond 12 months. This tendency to shorten duration was highest among large enterprises.

This means businesses remain very exposed to exchange rate movements a year or more ahead, Mr Tuffley says.

“The reality is, exchange rates are potentially volatile and often confound forecasts. If the NZD moves substantially over the next year, then businesses that are caught on the wrong side of the move won’t be prepared.”

Expected exposure increase

The survey reveals exporters have a higher turnover expectation, with 73.2% forecasting higher foreign exchange turnover and no exporters surveyed expecting less in the next 12 months.

“Possibly the result of the 2015 NZD depreciation, this higher turnover expectation – meaning stronger revenues – will provide a welcome countering force to the downturn amongst the dairy sector,” Mr Tuffley says.


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