Parity with A$ expected in next year

LAURA WALTERS
Last updated 09:41 12/03/2014

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Most businesses believe the New Zealand and Australian dollars will reach parity at some point in the next year, according to an ASB survey.

The ASB Kiwi Dollar Barometer survey of about 400 businesses with an annual turnover of more than $1 million found 69 per cent of them expected the kiwi's surge against the aussie to continue on to parity.

In the past year the New Zealand dollar has moved from A80c to A94c.

ASB chief economist Nick Tuffley said the favourable growth prospects of the New Zealand economy were underpinning the dollar, particularly given the slowing Australian economy.

More than 82 per cent of importers expected the currencies to hit parity, compared with 48.5 per cent of exporters who expected the New Zealand dollar to reach the elusive level.

In January, when the kiwi climbed as high as A94.66c, most currency experts said parity was unlikely despite predictions of healthy economic growth for the year.

ASB expects the New Zealand dollar to trade at about A93c to A94c over the next six months, before easing as economic activity in Australia picks up.

According to the survey, the majority of businesses expected the New Zealand dollar to ease against the United States dollar during the next 12 months.

The kiwi has traded between about US76c and US86c over the past year.

ASB said it expected the kiwi to fall to US77c by March 2015 as the US economy improved and the Federal Reserve continued to withdraw its monetary policy stimulus.

Importers were more confident than exporters that the New Zealand dollar would remain higher compared to the greenback over the next six months.

A greater proportion of small businesses - 55.2 per cent - said the New Zealand dollar's strength against the Australian dollar had a negative effect on their operating margin.

By comparison, 21.3 per cent of large businesses noted the negative effect of the high kiwi.

Large businesses were more likely to hedge almost all their foreign exchange exposure, Tuffley said.

"These results suggest there is scope for small businesses to make greater use of hedging to manage their foreign exchange risks to mitigate the negative effects of any adverse movements in the currency."

Tuffley said rising global dairy prices, the earthquake rebuild and a stronger interest rate differential with other major economies had underpinned the kiwi's strength in the past 12 months.

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- BusinessDay

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