4 Sep 2013

NZ dollar expected to creep higher, then ease

6:59 am on 4 September 2013

Firms expect the New Zealand dollar to creep higher against the US and Australian dollars, peaking next March before easing.

But the latest ASB Kiwi Dollar Barometer shows exporters are expecting a much larger decline than importers.

The kiwi is tipped to hit $US.81 early next year, about the time the Reserve Bank is expected to raise interest rates, before falling to $US.77 by September.

ASB chief economist Nick Tuffley says a major factor is the United States Federal Reserve's decision to wind back its quantitative easing programme.

"Over time, as the Federal Reserve withdraws the stimulus, it's also likely to see further strength in the US dollar. So some of those factors are likely coming into play in both the expectation it'll lift in the short term but that longer-term view that the New Zealand dollar will be weakening against the US dollar," he says.

Against the Australian dollar, there was a general expectation that the exchange rate will be in the $A.87-.88 range before falling to about $A.85 in about about a year.

"So we do have a situation where here in New Zealand we are likely to be lifting interest rates whilst in the short term the Reserve Bank of Australia is likely to keep rates on hold or could cut them further," Mr Tuffley says.

More businesses are hedging against movements in the dollar but the survey highlights a divergence, he says.

"We have actually seen importers in greater numbers intend to hedge whereas exporters have been of the view that they will hedge a little bit less. That will likely be driven by the sharp decline we've seen in the exchange rate.

"That certainly reminds importers of the risks that their businesses face if they don't hedge. For exporters, if they think that the depreciation could continue, they may well be more prepared to dial back their hedging."

The high New Zealand dollar has squeezed margins for exporters to Australia but they are yet to pass on the cost to their customers.

The ASB Kiwi Dollar Barometer surveyed nearly 400 businesses with annual turnover of at least $1 million.