Prices fall as dollar stays strong

More than half of importers are passing on lower prices to their customers as the New Zealand dollar maintains its strength against the Australian currency.

And trade companies in general expect the dollar to strengthen against the United States dollar, following a ‘‘sharp’’ 10c revision to their outlook.

The ASB Kiwi Dollar Barometer, which surveyed exporters’ and importers’ exposure to foreign exchange risk, found those businesses expected the dollar to average US75c a year from now.

This was 10c above the same 12-month outlook when the businesses were last surveyed three months ago.

The quarterly survey’s rise in expectations brought the outlook closer to ASB forecasts of US76c in a year’s time.

ASB chief economist Nick Tuffley said this ‘‘stronger for longer’’ view marked a shift from a view the dollar would depreciate.

‘‘Our view is that prospective additional US fiscal stimulus will be a long way off, with supportive domestic factors, including the elevated terms of trade and prospective OCR (official cash rite) hikes, likely to support the NZD.’’

The survey took place in the three weeks to August, when the dollar had traded at an average US74.3c.

This was up from a high of US70.6c during the May survey, driven by a weakening of the US dollar.

‘‘Linked to the lower USD has been reduced optimism that the stimulus and tax reform agendas proposed by President Trump will be quickly passed.

‘‘Increased risk aversion towards the end of the period and the ‘on hold for longer’ message from the RBNZ have seen the NZD pare back some of the recent gains.’’

The 434 businesses surveyed were also asked whether New Zealand’s upcoming general election had increased their use of foreign exchange hedging or options.

Last week, the dollar dropped about a third of a cent against the US dollar after a political pollshowed the National Party had slipped behind Labour for the first time in 12 years.

ASB found 83 per cent of businesses had increased their hedging or were likely to, and about 70 per cent were the same with the use of options.

‘‘Foreign exchange options are clearly the risk-mitigation product of choice to managing election-related currency volatility, with 70.5 per cent of enterprises having already increased, or intending to make increased use of, FX options,’’ Tuffley said.

The survey also questioned the importers and exporters about the New Zealand dollar being persistently high against the Australian and whether this had impacted selling prices.

The dollar had been above A90c since last April, and 40 per cent of businesses had passed on the impact to selling prices.

Meanwhile, 50 per cent had absorbed the impact within their margins.

More than half of importers had passed on the impact to customers, most likely in the form of lower prices, Tuffley said.

‘‘The degree of responsiveness varies by type of enterprise, with importers more likely to pass on exchange rate impacts, whilst exporters were more likely to absorb the impact in their margins.

‘‘Enterprises with larger turnover were also more likely to pass on the NZD/AUD exchange rate impact to customers, with smaller enterprises more likely to absorb the exchange rate impact into their margins.’’