NZ dollar: Declining interest to hedge amongst importers

Monday, 15 December 2014, 10:31 am
Press Release: ASB Bank

December 15, 2014

ASB Kiwi Dollar Barometer: Declining interest to hedge amongst importers

• Widespread belief amongst businesses the NZD has peaked.
• Importers pare back hedging plans despite expectations of further decline in the NZD.
• In contrast, exporters see recent depreciation as an opportunity to hedge at better levels.

The latest ASB Kiwi Dollar Barometer finds businesses are fairly confident the NZD has peaked and will continue to decline gradually over the year ahead.

ASB Chief Economist Nick Tuffley says that regardless of business size or type, there is a broad expectation the NZD will continue to ease, and will be near 0.736 by the end of next year.

“We also expect the NZD will fall further and reach 0.73 by the end of 2015,” Mr Tuffley says.

Despite expectations of further depreciation in the NZD, importers have pared back hedging plans.

“This quarter saw a smaller proportion of importers planning to hedge. In addition, those importers that do plan to hedge intend to hedge a lower share of their foreign exchange exposures.

“It might be the case that many importers were caught out by the sudden depreciation in the NZD, and are now hoping for some rebound which will allow them to hedge at more attractive levels than seen recently,” Mr Tuffley says.

“There is scope for importers to make more use of FX options to protect themselves against further depreciation in the NZD, while at the same time allowing the benefits of any NZD rebound along the way to be realised.”

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Meanwhile, there was greater interest to hedge amongst exporters. “The recent depreciation in the NZD provided an opportunity for exporters to hedge at better levels.”

The ASB Kiwi Dollar Barometer tracks exporters’ and importers’ exposures to foreign exchange risk, through surveying businesses with annual turnover of at least NZ$1 million.

The Barometer also surveys businesses’ expectations for the NZD/USD and businesses’ hedging plans for managing foreign exchange risk. Hedging involves reducing the risk of adverse currency movements to a business by using instruments such as FX forwards. For example, exporters can protect themselves from an appreciation in the NZD, while importers can protect themselves from depreciation in the NZD with the use of these instruments.

For the December 2014 edition of the ASB Kiwi Dollar Barometer, East & Partners interviewed 409 businesses turning over at least NZ$1 million per year. The interviews were conducted between 22 October 2014 and 14 November 2014. Businesses were asked a range of questions about their exposure to and views about the NZD.

The full ASB Kiwi Dollar Barometer report is available here.

ENDS

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