AMP Capital New Zealand, which manages more than $18 billion of assets, anticipates the kiwi dollar will start falling, and has started reducing its holdings in the local currency.
The New Zealand dollar rose to a post-float high 81.03 on a trade-weighted basis on April 10, recently trading at 80.04, and ended the March quarter at a record on the MSCI weighted New Zealand dollar index, which AMP Capital uses to track the currency, head of investment strategy Keith Poore told a media briefing in Wellington.
With dairy prices falling on Fonterra Cooperative Group's GlobalDairyTrade auction in recent months, and the prospect of US interest rates starting to rise next year, the currency's appeal is expected to diminish, he said.
"The kiwi dollar is starting to look good as a good proposition to sell - if you can sell something at a record-high, that's not a bad place to sell something," Poore said. "What we've been doing in the portfolios is selling New Zealand dollars, just a small position at the moment, so going unhedged in the portfolios to benefit what we think will be an eventual reversion to a lower New Zealand dollar."
New Zealand's accelerating economy, which AMP Capital sees growing 3.7 percent this year, and the prospect of rising interest rates have attracted investors to the local currency in search of yield, though that allure will dim as the rest of the world recovers from a protracted downturn.
AMP Capital chief economist Bevan Graham said the exchange rate will play an important role in where the Reserve Bank decides to end its tightening policy, though he anticipates governor Graeme Wheeler will push ahead with the already signalled rate hikes.
Graham expects the OCR to be at 3.75 percent this year, rising to 5 percent or 5.25 percent by the end of 2015. Wheeler hiked the benchmark a quarter-point to 2.75 percent last month, and traders have priced in a 97 percent chance of another rate hike next week.
AMP Capital is holding its benchmark allocation of local stocks, with the New Zealand equity market looking fully-priced relative to earnings, head of equities Guy Elliffe said.
Elliffe said he's targeting stocks with low dividend risk, a strong competitive competition, realistic earnings growth expectations, and a strong balance sheet.