New Zealand businesses expect a recovery in Kiwi dollar according to Kiwi Dollar Barometer
Tuesday 12 June 2012, 7:58AM
By ASB
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* Majority of businesses find success in hedging to navigate currency volatility * Strong NZD putting the handbrake on exporters' investment plans while importers are poised to increase investment
New Zealand businesses are shrugging off the current volatility in the Kiwi dollar and are predicting a gradual lift in the currency through to March 2013 according to a new survey released today by ASB Institutional. The inaugural ASB Institutional Kiwi Dollar Barometer reveals that although businesses see some potential for further easing in the NZD/USD over the next few months, the expectation among survey respondents for the NZD/USD at the end of December 2012 is 77.1 cents, with a recovery to 80 cents expected by March 2013.
The average expectation for the NZD/USD is higher amongst importers relative to exporters. Importers, on average, expect the NZD/USD to recover to 77.2 cents by the end of this year, and reach 80.3 cents by March 2013. In contrast, the average expectation amongst exporters is for the NZD/USD to ease further to 74.8 cents by the end of this year. While exporters also expect a recovery in the NZD/USD by March 2013, the average expectation of 78.4 cents is slightly lower.
"ASB Economics also forecasts some recovery in the NZD, but to a slightly higher level of 83 cents in March 2013. The extent to which the NZD lifts will depend on how successful Europe is in containing the ongoing debt crisis, which has pulled the NZD down recently", said ASB Chief Economist Nick Tuffley.
The Barometer also revealed that more than three quarters of respondents planned to hedge their foreign exchange exposures over the next three months. According to Mr Tuffley, this suggests New Zealand businesses are reasonably engaged with managing their foreign exchange risk. "This is likely to reflect the increasing trade and financial links between New Zealand and the rest of the world, as well as higher volatility in foreign exchange markets in recent years."
According to the Barometer, a significant majority (75%) of businesses view their foreign exchange hedging as 'successful'. The results also suggest that businesses tend to manage their foreign exchange exposure in response to changes in market conditions, with recent volatility and movements in the NZD/USD cited as the two key influences on hedging decisions.
In addition, the Kiwi Dollar Barometer asked businesses how the recent strength in the New Zealand dollar has affected their investment plans. Just over 60% of businesses that only import reported the high dollar has seen them increase their investment plans. With the robust dollar making importers more competitive in domestic markets, recent strength in the currency has encouraged these businesses to expand their operations. In contrast, around 53% of businesses that only export report the high dollar has seen them decrease their investment plans. "Given strength in the Kiwi dollar reduces the competitiveness of exporters in global markets, it is unsurprising that recent strength in the currency has made businesses wary about expanding their operations," says Mr Tuffley.