Drop in NZD an opportunity and a threat
(3 September 2015 – New Zealand) After a significant decline against the US dollar, New Zealand businesses expect a period of stability for the NZD, according to ASB Bank.
Having traded as high as 88c in July 2014, the NZD/USD has fallen more than 26c to trade very briefly at 62c in late August. Currently the NZD/USD is trading near 63c.
The bank’s September round of the Kiwi Dollar Barometer indicates that businesses have factored the dollar’s recent drop into their forecasts, but now expect a period of stability with the NZD/USD expected to trade around 65c over the year ahead.
The predictions in the upcoming quarter are significantly weaker than the previous quarter’s findings, when businesses were expecting the NZD to trade above 75c over the year ahead.
“We now expect the NZ Dollar to trade in a range centred on 61c by early next year,” said ASB Chief Economist Nick Tuffley.
“A high proportion of businesses rely on the forecasts of a consultant, a bank or an average of several banks for setting their own forecasts and budget rates. For some, it will be a point of interest that our forecasts, and those of other analysts, are even lower than the average response in the latest ASB Kiwi Dollar Barometer.”
A standout feature of the latest Barometer is that the vast majority of businesses have budgeted on a higher NZD/USD.
“Recent rounds of the ASB Kiwi Dollar Barometer highlight how quickly both our own and businesses’ forecasts can become out-of-date,” Mr Tuffley says. “The high budget rates are understandable given how strong the NZD has been over recent years.
“For exporters, the lower prevailing NZD/USD exchange rate may provide a boost to profits. In contrast, for importers, it’s an unexpected challenge,” Mr Tuffley says.
The report reveals 94% of businesses with turnover greater than NZ$150 million (A$135.68 million) plan to hedge, whereas just over 65% of businesses with turnover less than NZ$30 million plan to hedge their foreign exchange exposure.
The September Barometer showed surprising results for importer’s pricing intentions.
“We expected a higher proportion of businesses would be looking to pass on the higher costs of their imports, given the extent of the NZD decline. Even importers who have been fully hedged over the past year will eventually face a lower NZD and, subsequently, rising import costs,” Mr Tuffley says.
“In contrast to our expectations, the ASB Kiwi Dollar Barometer found some 54% of importers see lower chances of raising prices over the year ahead.”
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