New Zealand businesses may have underestimated the strength of the dollar against the Australian currency, judging from the latest ASB Kiwi Dollar Barometer.
Businesses were ''fairly convinced'' the NZ/AUS dollar exchange rate had peaked when the survey was conducted in early February after the Reserve Bank of Australia cut its cash rate on February 3.
ASB chief economist Nick Tuffley said yesterday he was surprised all businesses thought either the cross rate had peaked or, if it went higher this year, it would not get above A97c. Early this month, the dollar traded above A99c and the ASB now thought there was a good chance the cross rate would reach parity.
During the past five years, the kiwi had traded as low as A72c to above A99c.
''In fact, the pair was setting fresh record highs in late March and early April, after the ASB Kiwi Dollar Barometer survey was conducted.''
The key messages from the latest barometer indicated businesses were confident the New Zealand dollar would moderate further in the coming year, he said.
For exporters, it would be good news if the expected currency depreciation continued.
Even though exporters thought the dollar would go lower, a greater proportion were planning to hedge and those firms were hedging a greater proportion of their exposures than recorded in any previous barometer survey, he said.
Exporters appeared to see the recent depreciation in the dollar against the United States currency as an opportunity to protect themselves against any rebound.
Nearly 64% of exporters intended to hedge their foreign exchange exposure, a marked increase from the 54.5% of exporters six months ago.
Those exporters were also intending to hedge a slightly greater proportion of their foreign exchange exposure. For importers, the higher the New Zealand dollar, the better. But importers were not forecasting a ''wishful outlook''. They were forecasting the dollar to keep moving against them and head lower.
''We are surprised significantly fewer importers want to lock in their currency exposures now, before the dollar gets even weaker, as they are forecasting. It appears although importers are reasonably confident the dollar will continue to depreciate, there is uncertainty about how much they should protect themselves against this expected adverse shift in the currency.''
Also, importers might be uncertain about their business outlook, and that might be making them reluctant to lock in hedging they might not need, he said.
Since the ASB dollar barometer started in May 2012, every survey had shown at least 90% of all businesses in the $150 million-plus segment hedged nearly all of their foreign exchange.
However, the variation in hedging decisions being discussed for importers and exporters in the latest survey was being driven by the smaller businesses in the $1 million to $150 million-turnover categories, Mr Tuffley said.
Another factor behind the apparent inconsistency for importers was the ASB focusing the foreign exchange questions on the kiwi versus the US and Australian dollars. Importers might have been considering several cross rates when thinking about their exposures.
''A broad conclusion from the barometer's latest finding is cash flows are the dominant influence for small businesses and, generally, they hedge a lot less than big businesses. At the other end of the scale, big businesses hedge almost all of their cash flows, so their decisions are more influenced by the key inputs into hedging strategies such as volatility, the dollar level and the expected future movements.''
