New Zealand businesses generally believe the New Zealand
dollar will peak in March next year before depreciating against
both the United States and Australian currencies.
However, the latest ASB Kiwi Dollar Barometer finds variance
between the expectations of importers and exporters. The
average business view of the dollar shows it peaking at
US80.3c in March before falling steadily to US75.3c in
September the same year.
Importers, on average, expect the kiwi to peak at US81.1c
before reaching US77.2c by September.
Exporters expect the dollar to peak in March but at a
slightly lower level of US79.3c followed by a relatively
sharp depreciation to US69.8c by September.
Importers expected the New Zealand-Australian dollar cross to
peak at A88.1c in March before falling to A85.4c by
September. Exporters expected the kiwi to peak at A86.8c in
March and reach A84.4c in September.
In contrast, ASB economists expected a lower exchange rate
with Australia in the near-term, before rising to A87c by
June next year and holding at about that level for the
The barometer found more than 90% of the 385 businesses
surveyed indicated they had shortened the duration of their
hedging response - a defence against financial loss - to
recent shifts of the New Zealand dollar, with importers
shortening their hedging by a smaller amount of time.
ASB senior economist Jane Turner said the move to shorten the
duration of hedging likely reflected the large degree of
uncertainty over the direction of the dollar for the coming
''The re-emergence of volatility in recent months also means
a higher cost for taking out options, and this is likely to
deter businesses from hedging too far out with this tool.''
Importers generally indicated an increase in selling margins
as a result of the recent appreciation in the New
Zealand-Australian dollar cross, while exporters indicated an
increase in selling margins as a result of the recent
depreciation in other key New Zealand dollar crosses, she
''These results suggest many businesses are not choosing to
fully hedge their foreign exchange exposure and are not fully
passing on the effects on costs - whether higher or lower -
on to their customers.''
BNZ markets economist Stephen Toplis said recent history
showed a close correlation between the dollar and the
country's current account. Rather than a current account
deficit drawing in funds and driving the dollar higher, it
tended to be correlated in the opposite direction.
That suggested the current account deficit's impact on risk
perceptions was driving the currency more than the capital
The immediate outlook for the current account deficit was
relatively positive, thanks to a combination of supportive
dairy export prices and a significant post-drought pick-up in
Currently, the deficit sat at 4.8% of GDP and it was expected
to remain at or be below that level for the next 12 months.
Mr Toplis expected a significant deterioration in the balance
between mid-2014 and early 2016, largely because the expected
New Zealand economic expansion would be investment driven.
There was a high import component to investment goods which
would result in deterioration in the trade balance as imports
At the same time, a short-term negative movement in the terms
of trade was expected as recent dairy supply constraints were
The BNZ forecast the current account deficit to peak at 6.7%
of GDP (gross domestic product).
It was difficult to know the exact impact on the dollar on
the bank's prognosis for the current account, Mr Toplis said.
''On one hand, the higher the current deficit, the higher the
demand for New Zealand dollars to fund it, the higher the
''But, if the current account deficit gets to a level that
worries investors and threatens the country's credit rating,
there is every reason to believe the dollar will fall.''