Cutting the hedge: Exporters' dynamic currency hedging behaviour

We use a dataset that includes all New Zealand merchandise export transactions to analyse exporters' dynamic currency hedging behaviour. We focus on whether exporters change their hedging behaviour (“selectively hedge”) when the exchange rate and/or forward points depart from historical norms. We find that hedging ratios for exporters' Australian dollar exposures vary systematically as the exchange rate departs from historical averages; this behaviour is more marked for larger relative to smaller exporters. Consistent with efficient markets theory, there is no evidence that selective hedging is a profitable strategy for exporters.