The New Zealand dollar's record-breaking strength against its Aussie counterpart could prompt earnings downgrades from local listed companies with exposure to the Australian market, says an analyst.
The kiwi hit a post-float record of A99.78c on Monday before falling to A97.87 by 5.22pm last night following the Reserve Bank ofAustralia's announcement it would hold interest rates steady at 2.25 per cent.
However, the exchange rate remains elevated compared to the historical average of A84c, which puts pressure on companies that earn revenue across the Tasman and report earnings in New Zealand dollars.
Firms with significant exposure to Australia include SkyCity Entertainment, Fletcher Building, healthcare distributor Ebos and retailers Kathmandu, Hallenstein Glasson and Pumpkin Patch.
Research analyst and portfolio manager Shane Solly, of Harbour Asset Management, said sustained strength in the exchange rate could result in downgrades of companies' earnings guidance and cuts to analysts' forecasts.
"A large proportion of the New Zealand market has some exposure to Australian revenue and earnings," Solly said. "A lot of these companies have already been hit by falling levels of Australian economic activity."
Craigs Investment Partners' head of private wealth research Mark Lister said there was still room for Australia's Reserve Bank to carry out two interest rate cuts.
"I think we will hit parity and ultimately push up into the A$1.02 region," Lister said. "I think there will be consequences for companies that have got big Aussie operations."
Rickey Ward, New Zealand equity manager at JBWere, said the effect on individual companies of the exchange rate would depend on the hedging policies they had in place.
"The reality is we could stay up at these elevated levels for a while," Ward said.
Reporting its half-year result last month, Pumpkin Patch said unfavourable exchange rate movements had imposed a $7.6 million "negative impediment" on it.
