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ASB Kiwi Dollar Barometer - Expectations of NZD depreciation

Media Release

ASB Kiwi Dollar Barometer


Expectations of NZD depreciation

• Businesses expect the NZD/USD to peak at 0.803 in March 2014 before falling to 0.753 by September.
• Increased interest to hedge amongst importers due to expected depreciation.
• Majority of businesses shortened duration of hedging in response to recent shifts in the NZD.

New Zealand businesses expect the NZD to peak against both the USD and AUD in March 2014 before easing according to the latest ASB Kiwi Dollar Barometer.

“While both importers and exporters expect the NZD/USD to depreciate over the coming year, exporters are expecting a much larger decline in the currency by September 2014,” says ASB Chief Economist Nick Tuffley. “This large divergence between importers and exporters’ expectations likely reflects the high degree of uncertainty over the NZD outlook in light of the relatively wide range the NZD/USD has traded in recently.”

The expectations of a depreciation in the NZD have seen increased interest to hedge amongst importers. In contrast, exporters have trimmed back hedging intentions. However, exporters that do intend to hedge continue to plan hedging a higher proportion of their FX exposures than importers plan to.

The Barometer finds the majority of businesses have reduced the duration of their hedging in response to recent shifts in the NZD, with exporters tending to shorten the duration of hedging by a greater length of time compared to importers.

“The NZD has traded over a relatively wide range in recent months, leading to increased uncertainty over which direction the currency will go in the coming year. Increased volatility also means it is now more expensive to hedge using options. These factors may be discouraging some businesses from hedging too far out in time,” concludes Mr Tuffley.
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