Currency Hedging By Importers Down Since March 09

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News Release

Currency Hedging By Importers Has Dropped Since March 2009: Nielsen Study

Auckland, July 8, 2009: The average period of hedging for importers - weighted by the level of NZ dollars hedged – is 5.4 months (i.e. importers foreign exchange contracts on average cover 5.4 months of forecast foreign currency purchases). This result is from a quarterly Nielsen survey on foreign exchange hedging conducted in June 2009 on behalf of Asia-Pacific Risk Management and the New Zealand Export Credit Office. This result has substantially dropped since the results in April 2009 where the weighted level of NZ dollars hedged by importers was 9.7 months.

“The weakness of the USD in global FX markets that has pushed the NZD/USD exchange rate up from the low 0.5000’s to highs of 0.6500 over the last three months has clearly reduced the risk of adverse currency movements for NZ importers, accordingly they have reduced forward hedging percentages.” commented Roger J. Kerr from financial risk advisers, Asia-Pacific Risk Management. Mr Kerr added “The New Zealand economic and NZ dollar foreign exchange market outlook has improved significantly since March, with strong rallies upwards in international commodity and equity markets providing some reassurance that the global economy will recover out of recession, albeit it is looking to be a slow and hard grind back up” In addition, exporters are hedging for a slightly shorter period on average, with a weighted average of 9.0 months hedging in June 2009 compared to 10.8 months in the April 2009 quarter. This result has continued to decline since the December 2008 quarter where hedging sales was at its highest at 11.4 months, according to the Nielsen survey.

Regarding this export hedging figure, Mr Kerr commented, “Anecdotal reports suggest that it has been a really mixed bag for exporters in terms of their performance in hedging against the steep and largely unexpected NZD appreciation to above 0.6000 against the USD. A good number of USD exporters took the opportunity of locking-in longer-term currency hedging contracts when the NZD was in the low 0.5000’s several months ago. However it is apparent that others who relied too heavily on currency forecasts at the time, did not hedge and have been regretting those decisions ever since! The whole experience of the last six months confirms that foreign exchange risk management is a discipline under firm risk control limits and policies, not a wild punt at the casino as some media commentators suggest. Exporters, having nine months hedging in place on average, suggests that the majority have a disciplined and controlled hedging process or programme operating within their companies”.

The quarterly hedging survey has been conducted since the beginning of last year and shows the following average level of hedging over that time:

Mr Kerr noted that the continued decline in the amounts hedged from the December quarter 2008 to the June quarter 2009 for both importers and exporters could be partly due to banks restricting credit/hedging facilities whilst existing hedging contracts were in an unrealised loss position on a marked to market basis. The more recent rapid rise of the NZ dollar to 0.6300/0.6500 has subsequently reversed those contract loss positions for exporters and they now represent unrealised gains.

About The Nielsen Company

The Nielsen Company is a global information and media company with leading market positions in marketing information (ACNielsen), media information (Nielsen Media Research), (Nielsen Online, which is comprised of NetRatings and BuzzMetrics)”, mobile measurement, trade shows and business publications (Billboard, The Hollywood Reporter, Adweek). The privately held company is active in more than 100 countries, with headquarters in Haarlem, the Netherlands, and New York, USA. For more information, please visit, www.nielsen.com.

About Asia-Pacific Risk Management

Asia-Pacific Risk Management is New Zealand’s leading financial risk and corporate treasury adviser.

Headed by principals Roger Kerr, Stuart Henderson and Brett Johanson, the company provides foreign exchange, interest rate and debt management advice, incorporating design of treasury/hedging policies and ongoing hedging programmes/strategies. The firm’s client-base for one-off advisory projects and retained advisory relationships consists of public listed companies, SOE’s, Local Government entities and privately-owned companies. For more information, please visit, www.asia-pacificrisk.com

About the New Zealand Export Credit Office

The New Zealand Export Credit Office (NZECO) was established by the Government in 2001 to aid the globalisation aspirations of NZ exporters. NZECO works in a teaming approach with exporters and their banks to provide credit support and other services that mitigate the risks associated with international trade. See:- www.nzeco.govt.nz

About the Survey of Importers and Exporters

This Survey was conducted online, with participants responding to an email invitation to take part. The base list of major importers and exporters was prepared by Asia-Pacific Risk Management.

- The margin of error for importer results at a total level is +/-14.8% (based on a sample size of 47), the margin of error for the subgroup ‘importers who hedge’ is +/- 17.7% (n=34), because of the low base size the results in this media release are indicative only.

- The margin of error for exporter results at a total level is +/-12.9% (based on a sample size of n=61), the margin of error for the subgroup ‘exporters who hedge’ is +/- 16.9% (n=37), because of the low base size the results in this media release are indicative only.

The period of forward cover is a weighted result based on the level of New Zealand dollars hedged (those with higher levels of New Zealand dollar hedging have a greater impact on the total months hedged, than those with smaller levels).

ENDS

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