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Kiwi may weaken in run-up to Christmas, in reprieve for exporters, survey shows

Tuesday 1st October 2013

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The New Zealand dollar may decline toward the end of the year, helping exporters such as fishing company Sanford who see the value of their overseas sales eroded when the currency rises.

The kiwi, which recently traded at 83.16 US cents, is likely to decline to 79.50 US cents by the end of 2013 as the US starts trimming back its money printing programme, boosting the value of the greenback, according to the median forecast in the BusinessDesk quarterly currency survey of 10 currency traders and strategists taken the past week.

For Sanford, which fishes for species such as hoki, snapper and trevally in New Zealand waters, processes them and ships them to overseas markets, every 1 cent change in the exchange rate is worth $2 million to earnings before interest, tax, depreciation and amortisation.

"The movement in the currency has a huge effect on our business," said Sanford chief executive Eric Barratt, who has been at the helm of the company for 15 years. "Currency is the single most volatile thing we have to manage. When you are trading at 82 or 85 US cents, it is very, very hard to make any money."

The New Zealand dollar may come under pressure in the final quarter of 2013 as improving US economic data prompts the US Federal Reserve to start trimming back its US$85 billion a month bond buying programme. A reduction in the programme supports the greenback because it would reduce the amount of US dollars in circulation, boosting its value.

Still, expectations for the New Zealand dollar at the end of the quarter span a wide range from 77 US cents to 87 cents, according to the BusinessDesk survey.

In the fourth quarter, importers are typically big buyers of the currency as they purchase stock in the lead up to the key Christmas sales period.

The survey shows the trade-weighted index, which tracks the New Zealand currency against those of Australia, Japan, the US, the UK and the euro area, will likely be 76, from 77.06 currently. Expectations in the BusinessDesk survey range from 74 to 80. That compares with the Reserve Bank's expectation for the TWI to average 74.7 over the quarter, according to its latest forecast published Sept. 12.

"We wish we didn't have to deal with the exchange rate," Sanford's Barratt said from Auckland. "Around 85 percent of our total revenue is export generated so it is a significant issue for us - we are very exposed."

Sanford, New Zealand's largest listed fishing company, is most exposed to the US dollar, followed by the Japanese yen, Australian dollar and the euro, Barratt said.

In 2012, Sanford profit fell 6.7 percent to $21million. The company expects this year's annual profit will rise to between $23 million to $25 million.

BusinessDesk.co.nz



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