NZ hedging increases amidst volatile currency markets
(30 September 2016 – New Zealand) ASB Bank's Kiwi Dollar Barometer shows foreign exchange hedging is at its highest level in two years.
ASB chief economist Nick Tuffley said the New Zealand dollar had been knocked around this year, with uncertainties about China's economy, the Brexit vote, and US presidential election.
The dollar is up about 7 percent so far this year, but has ranged between 63.5-75 cents against the US dollar. It last traded at 72.76 US cents.
Tuffley said the research showed an average expectation of the NZD at 71.3 cents at the end of this year, falling to 68.7 US cents over the next 12 months, but the unpredictability of the currency's direction was behind moves by companies to insure themselves.
"Delayed US rate hikes have supported the NZD/USD and offshore rate cuts continue to make the NZD attractive."
The bank is forecasting the New Zealand dollar to be about 72 cents in a year, even with a likely rate rise in the US and rate cut in New Zealand.
Tuffley said the survey showed businesses increasingly using options to control their foreign exchange risk, which gave them the right but not an obligation to buy cover.
Options are more expensive but more flexible than the traditional contracts to lock in a set currency level.