Where do New Zealand Businesses see the New Zealand Dollar Going?

Where do New Zealand Businesses see the New Zealand Dollar Going?

6 April 2016, 22:41
Vasilii Apostolidi
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The latest ASB Kiwi Dollar Barometer is out and it shows that the previous forecasts made by New Zealand businesses remains remarkably accurate.

If New Zealand businesses are good at calling the New Zealand dollar’s direction, it goes without saying that we want to know where they expect the currency to head next!

The ASB Kiwi Dollar Barometer is prepared every three months based on a survey conducted by East & Partners, a market research and advisory firm.

For the latest edition of the ASB Kiwi Dollar Barometer, East & Partners interviewed 424 businesses turning over at least NZ$1 million per year. Research fieldwork was conducted over a three week period ending 15 February 2016.

Over this period the NZD traded between 0.64 and 0.67.

Businesses were asked a range of questions about their exposure to and views about the NZD.

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Not a Bad Forecast

Three months ago, respondents to the survey were forecasting a NZD to USD conversion of around $0.670 by the end of March.

Currently the rate is near that expectation, suggesting a decent forecasting potential when 424 separate minds are put together.

Having noted the exchange rate largely evolving according to their expectations, it would appear that respondents have simply extrapolated their trend expectation out to March 17.

Businesses expect the NZD/USD to be $0.645 in twelve months.

Interestingly, the forecasts made by importers and exporters differ.

Importers continue to have a lower NZD/USD expectation ($0.641) than exporters ($0.650).

And, the expectation of SME with an annual enterprise turnover of $1-30m (exporters and importers combined) at $0.651 is above that of larger businesses.

Not Budgeting to Expectation

Interestingly, ASB report that while the average expectation is for a lower NZ dollar, there is only a relatively small proportion of all firms (27.8%) who were prepared to set a budgeted NZD/USD below $0.650.

The dichotomy between expectations and budgeted rate was most noticeable amongst importers: their average $0.641 expectation was significantly less than the budgeted rate that centred near $0.700.

“At the extreme, there are 36.7% of importers who are currently budgeting at $0.700 or higher. Either they are holding onto successful hedges from early 2015 or, more likely given the lapse of time since the NZD was high, these importers are witnessing their profit margins deteriorate before their product even arrives in the country,” says Nick Tuffley, Chief Economist at ASB.

Exporters Benefitting from a Lower New Zealand Dollar

The decline in the New Zealand dollar over recent years appears to have delivered a positive effect on exporters as their produce becomes cheaper on the global stage.

73.2% of exporters survey are forecasting higher foreign exchange turnover and no exporters surveyed are expecting less in the next twelve months.

“Possibly the result of the 2015 NZD depreciation, this higher turnover expectation will provide a welcome countering force to the downturn amongst the dairy sector,” say Tuffley.

Of the exporters expecting higher turnover, the average increase in turnover expected is 9.3%

Is it any wonder then that the RBNZ wants to see the exchange rate stay as low as possible for as long as possible?

ASB Upgrade New Zealand Dollar Forecasts

In contrast to the expectations for a weaker Kiwi dollar going forward ASB Economics have revised up their New Zealand dollar forecasts.

Analysts at the Auckland-based bank expect the New Zealand to US dollar exchange rate to creep up slightly, this despite their view that the RBNZ will keep dropping the OCR.

This is seen as an admission that the Reserve Bank of New Zealand (RBNZ) is unlikely to achieve a lower NZD through interest rate cuts.

Part of the reason for the more pro-NZD forecast lies with the US dollar side of the NZD/USD equation - “it has become increasingly clear that US interest rates will rise only very gradually over the next couple of years,” says Tuffley  “strengthening of the USD itself since mid-2014, one driver of the weaker NZD/USD, appears to have run its course.” 

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