ASB economists have reconsidered their currency forecasts and are now predicting the NZD will reach parity with the AUD.
The forecast comes with the release of the latest ASB Kiwi Dollar Barometer, for the three months to March 2015.
The parity forecast now stands in contrast to findings in the Barometer given that most survey respondents, in early February, were convinced the Kiwi had peaked against the AUD or, that if it went any higher, it wouldn’t get above A97c.
In recent weeks however the NZD/AUD has traded above A99c.
ASB Chief Economist Nick Tuffley says there is a good chance the cross rate will reach parity.
A clear catalyst could be another RBA rate cut, which could come as early as today, when Australia’s official cash rate is reviewed,
“At the start of the year, most people didn’t think it would reach parity,” Mr Tuffley says.
“But recent events such as the Reserve Bank of Australia’s February rate cut and the resurgent NZD have led us to change our forecasts and we expect it will hit parity this year.”
The ASB Kiwi Dollar Barometer surveys corporate treasurers and financial controllers of large companies (with annual turnover of at least NZ$1 million) for their expectations for the NZD, hedging plans and exposure to foreign exchange risk.
Other findings of this quarter’s survey include:
• Broad-based belief amongst businesses the NZD will moderate further against the USD over the year ahead.
• In comparison to previous surveys, there is very little difference between the expectations of importers or exporters.
• Despite the widely-held expectation of further depreciation in the NZD, importers’ interest to hedge their foreign exchange exposure declined noticeably for the second quarter.
• Meanwhile, the percentage of exporters hedging their exposures has increased for the second quarter.
• The ASB Kiwi Dollar Barometer has consistently shown big businesses hedge almost all their foreign exchange exposures. In contrast, most of the observed changes in hedging intentions are driven by small and medium sized businesses.
In summary, a slightly smaller percentage of businesses are planning to hedge foreign exchange exposures now compared to earlier surveys. But of those businesses that do plan to hedge, the proportion of foreign exchange exposure being covered continues to lift.
Note to editors:
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 April edition of the ASB Kiwi Dollar Barometer, East & Partners interviewed 417 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.
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