Hedging strategies and QEIII

Pathfinder Asset Management says there are arguments for and against continued strength in the New Zealand dollar – one of which is the fact that quantitative easing seems to generate a smaller shockwave each time it is employed. The US recently signalled it would embark on another round.

But currency trader Hugo Phillips says Pathfinder’s predictions are inaccurate. He says there will soon be a massive oversupply of US dollars and because New Zealand is primarily pegged against the United States, that will mean further strength for the Kiwi.

And ASB’s latest Institutional Kiwi Dollar Barometer seems to agree – businesses think the dollar will remain high and peak at US85.6 cents in the middle of next year.

Pathfinder has signalled a possible reduction in the after-tax hedging it recommends for investors, flagging concerns for the reliability of predictions for the Kiwi dollar against the USD and Euro.
It is not changing its current guidance of a 75 per cent after tax hedge. But it says a lowering of hedging guidance to 50 per cent is likely in future.