7 Apr 2015

Exchange rates to impact wool export returns

1:59 pm on 7 April 2015

The New Zealand Australian exchange rate won't have a big impact on wool export earnings, but other currency fluctuations are causing headaches for those exporters.

New Zealand sends some wool to Australia, mainly for carpet making. But the General Manager of the country's biggest exporter John Dawson of Wool Services International, estimates less than 10 percent of New Zealand wool exports are traded in Australian dollars.

He said the New Zealand dollar's record high levels against the depressed Euro were having a greater impact on wool returns and demand, because 10 to 15 percent of the clip was sold in that currency.

The Euro had weakened significantly in the past three months and the Kiwi was currently sitting at 68 Euro cents.

"There's no doubt that we've certainly seen a drop off in demand from the Euro customers. We can see that they're delaying purchasing decisions in the hope that there's some currency movement, either at the Kiwi end or the Euro end, looking to space stocks out that they have, rather than re-enter the market.

"There's certainly been a slow down from that part of the world, there's no question about that."

But Mr Dawson said the New Zealand-US exchange rate remained the biggest currency issue for wool exporters because up to 70 percent of the clip was sold in US dollars, mainly to the biggest market, China.

He said the volatility of those currency movements had been a particular challenge this season.

"You know when you look at the US pattern, if you go back to the second (wool) sale of the season, the US was at 88 (cents) to the kiwi. Today its about 75 and a half, having tracked down to something under 72 in late January and then coming up again.

The biggest problem we face in the wool industry is not so much the level in respect to the US dollar, its the volatility of the currency.

"In short time spans you can have two, three, four percent movement and it doesn't make it very easy as far as explaining these sorts of things to your customers, because the trading margins for wool are very fine and to get movements like that in the currency, it can wipe out any profit that you can hope to make, overnight."

Mr Dawson said currency speculation was contributing to exchange rate volatility, with the New Zealand dollar reported to be the 10 most traded currency in the world.

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