Exporters advised to consider hedging as NZ and Aussie currencies shake off the wobbles

Tuesday, 7 April 2020

The dollar has been a spin, but Roger Kerr believes now may be a good time to hedge against the greenback.

The New Zealand dollar appeared to briefly hit parity with the Australian dollar last month, less than a day before it plunged by 4 US cents against the greenback.

But the excitement seems to be over for now on currency markets, with the Australian dollar recovering and experts seeing some upside for the kiwi against other currencies.

Roger Kerr, executive chairman of Barrington Treasury Services, said it could be a good time for exporters to consider hedging to protect themselves against an appreciation of the New Zealand dollar against the US dollar.

The New Zealand dollar's movement to Australian-dollar parity during a 15-minute trading spell on March 18 didn't escape the attention of NZ Super fund spokesman Conor Roberts and was tentatively confirmed by Kerr.

On many currency tables that can be readily accessed for free online, it would have looked like a rounding error.

The downward thin red line on a Trading Economics chart shows the Australian dollar briefly trading just below NZ$1 late on March 18.

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The sombre circumstances and fleeting nature of spike – occurring as it did while Australian economic sentiment was being sapped by the coronavirus pandemic – meant there were no long-anticipated 'parity parties' to mark the occasion.

There was no time to don hats for a parity party, even if had been appropriate.

'I think it did get there if you look at the screens, but it would have to have been a pretty quick party,' Kerr said.

The day after parity was briefly achieved, the New Zealand dollar plunged 4 US cents to US55c against the greenback, creating an entirely different set of headlines.

The Reserve Bank would not comment on whether any intervention by it in currency markets might have been behind that precipitous drop.

But Kerr believed that was unlikely.

'I don't think there was any Reserve Bank intervention.

'My view of the reason the dollar was being sold at that time, on that day, was there was a global scramble for US dollars because there was a shortage which was quickly alleviated by the US Federal Reserve when they did their massive quantitative easing programmes.'

The New Zealand dollar since appears to have settled at a level a little below A$1, US60c and £0.50.

Kerr expected it could gain ground from here, perhaps into the 'mid-60s' against the US dollar, given global prices for New Zealand's agricultural exports had not fallen.

'Certainly after the GFC, in 2010 and 2011 when the US was on its big quantitative easing drive – printing money – the US dollar really weakened.'

If history repeated itself – and Kerr believed that it would – the next two years could look very similar to 10 years' ago, he said.

'My view is the US economy looks to be in more trouble than others.

'Our exporters should be taking advantage of these lower rates. It is about taking the risk out of profit margins.'

But after briefly outshining the Australian dollar, Kerr believed the New Zealand dollar could slip back as far as A94c.

China would probably need to announce a fiscal stimulus and infrastructure spending, boosting demand for Australian commodities, to make that happen, he said.

'We haven't seen that yet from China but I think they will be forced to do that.'