The New Zealand dollar continues to test five-year lows following the Reserve Bank's interest rate cut earlier this month, appearing to catch the majority of businesses by surprise.
The latest ASB Kiwi Dollar Barometer indicates businesses expected a period of stability for the New Zealand-United States dollar cross, having been confident of further depreciation when asked in earlier surveys.
The interviews were conducted over the three-week period ending May 1. During that period, the kiwi traded between US74c and US77c.
ASB chief economist Nick Tuffley said yesterday the New Zealand dollar had depreciated swiftly against the US currency during May and early June, reflecting both a firmer US dollar and a softer kiwi.
In the wake of the Reserve Bank's April 29 meeting, the local interest rate market moved to price a high probability of OCR cuts from the central bank.
Those rate cut expectations were a key catalyst for a move lower in the dollar.
''Then, the Reserve Bank actually cut the OCR in June and the New Zealand dollar has taken another leg down, trading below US70c against the US dollar for the first time since 2010.
''Rapid movements like this can make any forecasts look out of date, including our own.''
Yesterday, the dollar was trading at around US68.5c, US8c lower than its average over the survey period, Mr Tuffley said.
The current spot rate was the starting point for any currency outlook and if ASB asked the same questions now, respondents would have a lower forecast for the near-term, at least.
However, no-one was forecasting the dollar to get as low as it was now trading when ASB asked back in April.
The lowest forecast for the exchange rate was only US74.3c, close to the low the dollar traded during the survey period, he said.
''It appears that over that late April period, respondents lost some of their earlier conviction the exchange rate could head lower.''
The barometer respondents were not alone in picking a ''fairly stable'' outlook for the local currency, Mr Tuffley said. The dollar was already weaker than the Reserve Bank's recent projections and had traded below US70c faster than forecasts had suggested.
''We hope no-one expects currencies to track exactly towards forecast points each quarter. Floating currencies always trade in a reasonably wide range. Quarterly forecasts are better interpreted as estimates for the centre of an unexpected trading range.''
Since 2013,s the dollar had typically had a range of about US5.5c over any given three-month period, he said.
During the least volatile three months, the range was US3c and in the most volatile period, the range was nearly US11c.
In the last three months, the range had been US7c, slightly higher than average but far from extraordinary.
''In other words, we should expect the sort of range that we have seen the dollar trade in over the last three months fairly regularly, rather than be surprised by it. The dollar had been reasonably stable around the weeks the survey was taken and that may have influenced expectations for the outlook.
''But in saying that, the trading range over the three months prior to the survey was still US4.6c, only a fraction less volatile than average.''
Businesses were asked about their hedging intentions in the barometer survey and Mr Tuffley said with current uncertainty in mind, it was understandable most businesses want to reduce their risks faced from unpredictable and potentially unfavourable foreign exchange movements.
The one clear pattern was the bigger a firm was, the more likely it was to hedge its currency exposure.
More than 62% of businesses with turnover less than $30 million planned to hedge their foreign exchange exposure, while 93% of businesses with turnover greater than $150 million planned to hedge, he said.
Cash flows could be less predictable or irregular for smaller businesses and was one reason why they hedged less.
The April barometer found 53.5% of businesses in the $1 million to $150 million turnover segment cited the timing of cash flows as the dominant influence on their foreign exchange transactions each quarter.
More importers planned to hedge than exporters, again a continuation of the pattern observed in previous barometers.
In the April survey, 82% of importers planned to hedge their foreign exchange exposures and for those firms, an average of 84.4% of exposures would be hedged.
In contrast, 62% of exporters planned to hedge, but on average those firms planned to hedge 94.1% of their exposure.
