Strong NZD prompts importers to pass on lower prices
(12 September 2017 – New Zealand) More than half of all importers in New Zealand are passing on lower prices to customers as the Kiwi dollar continues its strong position against the Australian currency (AUD).
Meanwhile, exporters and importers in general forecast the NZD to strengthen against the greenback (USD), following a "sharp" 10c revision to their outlook.
The ASB Kiwi Dollar Barometer, which interviews exporters' and importers' exposure to foreign exchange risk quarterly, found those businesses expected the dollar to average US$0.75 a year from now.
This was 10c above the same 12-month outlook from three months prior.
"Our view is that prospective additional US fiscal stimulus will be a long way off, with supportive domestic factors, including the elevated terms of trade and prospective OCR (official cash rite) hikes, likely to support the NZD," said ASB chief economist Nick Tuffley.
"Linked to the lower USD has been reduced optimism that the stimulus and tax reform agendas proposed by President Trump will be quickly passed.
"Increased risk aversion towards the end of the period and the 'on hold for longer' message from the RBNZ have seen the NZD pare back some of the recent gains."
The 434 businesses surveyed were also asked whether New Zealand's upcoming general election had increased their use of foreign exchange hedging or options.
Further, the research conducted by East & Partners on behalf of ASB found 83 percent of businesses had increased their hedging or were likely to, and about 70 percent were the same with the use of options.
"Foreign exchange options are clearly the risk-mitigation product of choice to managing election-related currency volatility, with 70.5 per cent of enterprises having already increased, or intending to make increased use of, FX options," Tuffley said.
Importers and exporters were also asked about the NZD’s consistently high value against the AUD, and its impact on prices. Forty percent of businesses reported that they had passed on the impact to selling prices. Meanwhile, 50 percent had absorbed the impact within their margins.
"The degree of responsiveness varies by type of enterprise, with importers more likely to pass on exchange rate impacts, whilst exporters were more likely to absorb the impact in their margins,” Tuffley said.
"Enterprises with larger turnover were also more likely to pass on the NZD/AUD exchange rate impact to customers, with smaller enterprises more likely to absorb the exchange rate impact into their margins."