Momentum in the New Zealand dollar is set to cost exporters
dearly in the year ahead, with indications of more
strengthening against the currencies of trading partners.
The waning Australian economy, decisions by the United States
central bank the Federal Reserve and domestic inflation
concerns are conspiring to strengthen the kiwi - all
underpinning its attraction as a target for overseas
Since early November the kiwi has risen against the
Australian from A87c to A93.51c yesterday, the US dollar from
US82.5c to US83.81c, although only slightly against the
Chinese yuan, from 5.03 to 5.06 yesterday.
Craigs Investment Partners broker Peter McIntyre highlighted
the imminent renewal of forward cover foreign currency
contracts would be yet another cost to be borne by companies,
especially given the large gain against the Australian
''It's likely many would have contracts covering about A85c,
but renewals at more than A90c is also going to be a lot more
expensive,'' he said.
Craigs predict the kiwi will go through A95c some time during
the present quarter.
As if to underline the growing problem, a recent currency
review by Craigs prompted Fletcher Building to be singled out
for a slight profit downgrade yesterday.
Its forecast after-tax profits were pushed down 0.6% for
full-year 2014 and 1% down for full-year 2015, Craigs having
changed its outlook on the Australian dollar average from
A88.3c up to A90c this year, and to A91.6c during 2015.
Mr McIntyre said ''timing will be crucial'' for New Zealand's
Reserve Bank governor, Graeme Wheeler, on when to raise the
interest-driving official cash rate (OCR), to counterbalance
looming inflation pressures.
While most analysts are picking an OCR rise in March or
April, Mr McIntyre said that timing could possibly be pushed
out to June, while Mr Wheeler considered the performance of
the Australian economy and its cash rate, and any change to
the Federal Reserve's 0% cash rate.
''Australia's economy is sluggish at the moment and its
Reserve Bank is likely to cut the cash rate from 2.5%, which
makes New Zealand more attractive [to investors],'' Mr
Forsyth Barr broker Andrew Rooney said with the kiwi up
15.87% against the Australian dollar last year, 2013 was
''disappointing'' for New Zealand investors.
While not picking a reversal in the kiwi's strengthening
trend in the short term, the present levels would be ''less
of a headwind'' for New Zealand investors this year.
Mr Rooney noted that while both countries' cash rates stood
at 2.5%, the bias was for ''markedly higher'' rates in New
Zealand during the next one to two years, while in Australia
the rate likely would be stable.