Dollar may decline in third quarter, prompting importers to hedge ahead of Christmas

The New Zealand dollar may weaken in the third quarter, prompting importers to buy the currency while it is hovering near record highs as they gear up for Christmas, their busiest season.

The kiwi, which today touched a fresh three-year high of 88.29 US cents, may slip to 85 cents by the end of September as higher local interest rates are offset by a strengthening US economy, according to the median forecast in a BusinessDesk survey of 18 currency traders and strategists.

For New Zealand retailers, a high local currency has been a benefit, enabling them to buy overseas merchandise at a lower cost which they can either pass on to consumers in the form of cheaper prices or retain to boost their margins and profits. Still, with the currency likely to decline from elevated levels, retailers such as Briscoe Group will be looking to lock in their currency rates at high levels so they have the best buying power possible heading into the busy Christmas season.

"We are a real beneficiary some days and get hurt other days by currency but certainly right now there are pretty bright sunny days at the moment with the currency where it is - it does give us some benefit but also it gives us the flexibility to sell some pretty nice merchandise at some pretty cheap prices as well," said Briscoe managing director Rod Duke, who says he has locked in options to buy the currency at favourable levels heading into the last four months of his financial year though January, where he typically makes 40 percent of annual sales.

"We certainly have a relatively high protectionist view of the currency and so I am fairly well hedged with just a small percentage left over that I can spot buy on because the most important thing for me of course is that I last longer than my competitors at these sort of levels," Duke said.

Briscoe Group, which includes the Briscoes Homewear, Rebel Sports and Living & Giving chains, has the flexibility on its balance sheet with cash in the bank and no debt to be able to buy currency to secure good rates, he said.

The New Zealand dollar is close to its post-float high of 88.40 US cents touched in August 2011 as investors are lured to the nation's higher yields as local interest rates rise while rates in most other major economies remain at record lows. The local currency is predicted to decline in the third quarter as a revival in the US turns investor attention to when interest rates will start increasing in the world's largest economy.

Expectations for the New Zealand dollar at the end of the third quarter range from 81 US cents to 91.50 cents, according to the BusinessDesk survey taken this week.

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 fall to 80 from 81.89 currently. Expectations in the BusinessDesk survey range from 78 to 85. That compares with the Reserve Bank's expectation for the TWI to average 79.7 over the quarter, according to its latest forecast published June 12.

(BusinessDesk)