Banking and Foreign Exchange

Thursday February 8, 2018

The FLC Group has recently moved banks, beginning a new long-term relationship with ASB. The Board and Management are excited to be working with ASB in continuing the growth of the Group.

Below are some extracts from ASB around the current and forecasted status of the NZD against the USD. Although we ourselves sell New Zealand lobsters in NZD and Australian lobsters in AUD, many exporters around the world sell lobsters to China in USD, including most other New Zealand exporters. Market prices for lobster are tracked against the USD.

Excerpt from ASB:

The NZD has been in the spotlight recently, with the NZD currently around 73 US cents. It briefly touched 74 US cents in late January, before declining back to the January 2018 average rate of 73 cents.
President Trump’s “America First” policies and comments that “a weaker dollar is good for us as it relates to trade and opportunities,” saw the USD index hit a three-year low last week and NZD/USD hit a 5-month high.
ASB Bank’s FX forecasts suggest that the NZD is expected to remain resilient over 2018.
There are the usual risks around forecasts. The NZ economy is currently in a sweet spot of solid growth and low inflation, and the value of the NZD currently largely reflects that. We remain somewhat wary, however, of the potential for an adverse shock to derail the global expansion and take the NZD down a peg or two.
The ASB medium-term bias remains a weaker USD, reflecting narrowing USD interest rate differentials as other central banks contemplate policy tightening ahead of the Fed. The NZD is expected to remain broadly supported by its solid economic outlook, strong NZ commodity export prices and historically high Terms of Trade and strong demand as global central banks/other real money managers continue to increase NZD exposures.

So, ASB notes that the USD is currently weak, and expects it to weaken further under the current US administration, while the NZD will be supported by sound economic fundamentals. This would tend to reduce returns in NZD over the coming year. There is a similar dynamic in play with AUD.

In our favour though, the USD is also weaker against the Chinese Yuan (CNY), as shown below. This makes lobsters more affordable in China and provides some headroom for the USD price to rise correspondingly, under the right market conditions, bringing the potential for NZD and AUD returns to be maintained.

Time will tell, remembering the exchange rate is just one of many influences on lobster sales.