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NZ businesses predict a weaker dollar

NZ businesses predict a weaker dollar

(29 June 2016 – New Zealand) The latest round of the ASB Kiwi Dollar Barometer has revealed that New Zealand businesses are expecting a weaker dollar (NZD) in a years’ time.

Although the NZD has strengthened against the greenback since the March results, the June quarter survey of internationally-trading businesses indicates they are expecting more NZD weakness in the year ahead. On average, they are picking the NZD/USD will depreciate to 0.6520 at the end of June 2017.

According to the research, New Zealand importers are now less pessimistic on the NZD, with the 12-month outlook still down, but lifted 0.655 from 0.641. Exporters have gone the other way, with expectations dropping to 0.647 from 0.650.

Additionally, the June Barometer illustrates a large change in firms’ attitudes towards managing foreign exchange risk over the last two years.

The most notable shift has happened with firms with annual turnover of NZ$30-$150 million. The most prominent change is what drives their hedging decisions.

Under 8 percent of firms in that segment say the timing of cash flows is the main deciding factor to hedge, signalling a massive decrease from just over 43 percent in 2014.

Over the same period, firms have reported a growth in discretionary decision-making among firms (around when to and how to hedge) to 73.2 percent (compared with 17.3 per cent in 2014).

These results indicate that mid-sized firms are thinking more consciously about hedging strategies, rather than just reacting as-and-when cash flows dictate.

The bank’s ASB chief economist, Nick Tuffley says the demand for hedging may grow further as the external trade grows and the businesses in New Zealand are increasingly exposed to foreign exchange flows.

"However, near-term demand for hedging depends on the NZD’s behaviour over the coming months. Should the NZD weaken, as respondents generally expect, exporters will have little incentive to increase cover. But should the NZD evolve as ASB is forecasting, there could be a significant increase in exporters hurrying to seek cover," Tuffley said.

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