Currency sentiment falls after the NZ election
(10 December 2017 – New Zealand) Respondents to the new research from ASB Bank are expecting to see additional weakness in the NZD in the near future.
The bank's Kiwi Dollar Barometer, which tracks exporters' and importers' exposures to foreign exchange risk, through surveying 432 businesses with annual foreign exchange turnover of at least NZ$1 million, said expectations were for a big shift lower.
"A clear turnaround in NZ dollar sentiment was evident in the survey, with respondents having significantly revised down their NZD/US dollar outlook," the bank said.
Surveyed respondents now expect the NZD/US dollar to average US65.9c by the fourth quarter of 2018, which compares to a 12-month outlook of US75c three months ago.
"Respondent groups have a similar outlook, irrespective of their trade focus or size of operation," the bank said.
The US6c fall in the NZD since the August survey partly explained the change in view, but the change in government and offshore factors are likely to be influential, it said.
The Barometer also found that there was an increase in hedging intentions, with the 84 percent of respondents planning to hedge exposures -- the highest in the close to four-year history of the survey, according to the bank.
There were differences by trade orientation, with the lower NZ dollar reducing hedging intentions for exporters (52.4 percent), increasing intentions for importer/exporters (at 97 percent), with those for importers steady at around 90 percent.
For those enterprises that plan to hedge, the cover is equivalent to 93.7 percent of foreign exchange exposures, the highest on record.
More than 80 percent of respondents believed there had been an election impact, with around three quarters believing the outcome had weighed on the NZ dollar.
"We caution that there are likely to be other factors also impacting on the NZ dollar," ASB said.
More than one-third of respondents felt that the next bout of foreign exchange volatility would be the result of US President Donald Trump and subsequent US trade policy and protectionist sentiment.
Trump was the most likely source of volatility for exporters and importers, whereas for more than one-third of importer/exporters, domestic politics was seen as likely to be the catalyst.
"NZ dollar volatility and subsequent weakness around the recent New Zealand election are a case in point, in which the NZD has traded in a US7c range over the past 5 months and has moved from around US73.5c cents just prior to the election to around US69c by early November.”