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NZ dollar seen little changed in 4th quarter, BusinessDesk survey says

Monday 29th September 2014

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The New Zealand dollar is likely to be little changed from its current level by the end of this year, providing little respite for the nation's 1,600 avocado growers who are heading into their peak export season from September through February.

The kiwi, which recently traded at 78.61 US cents, is likely to edge lower to 78.50 cents by the end of December, according to the median forecast of 21 traders, strategists and economists in the BusinessDesk's quarterly survey of the New Zealand dollar.

Avocado sales more than doubled to $136 million last year, eclipsing the previous high of $84 million set in 2010, as export and domestic markets set new records. Volumes in the coming season are expected to exceed last year as the crop outperforms on alternative years. Avocados are New Zealand's third-largest fresh fruit export, and many exporters hedge their currency exposure to mitigate the effect of changes in the currency.

"We export between 65-70 percent of our crop so obviously that is all impacted by the currency," said Jen Scoular, chief executive of the Tauranga-based New Zealand Avocado Growers' Association and the Avocado Industry Council. "It's absolutely a factor that we have to factor into our pricing and our calculations of grower returns. It's one of those things as an exporter out of New Zealand, you can't do an awful lot about. It's all positive if the New Zealand dollar is weakening."

New Zealand growers expect to export 4.7 million 5.5kg avocado trays this year, up from 3.2 million last year, Scoular said.

Some 70 percent of New Zealand's avocado exports are typically taken by Australia, where returns last year were boosted by low Australian supply combined with a great summer and high quality New Zealand harvest. It's too early in the season to estimate prices this year, Scoular said. The kiwi has gained about 1.1 percent against the Aussie the past year and was recently trading at 89.85 Australian cents.

Avocado growers are targeting markets in Asia to grow sales further, and returns have been affected by the local currency's significant strength against the Japanese yen, Scoular said. The kiwi has appreciated about 5.7 percent against the yen the past year, and was recently trading at 86 yen.

The New Zealand dollar's value against the greenback will also be closely watched with some 700,000 trays heading to the US this year, she said.

Expectations for the New Zealand dollar at the end of the fourth quarter range from 76 US cents to 87 cents according to the BusinessDesk survey taken over the past week. Just under half of the respondents lowered their expectations of the kiwi's level after Reserve Bank governor Graeme Wheeler jawboned the kiwi lower in an unscheduled statement on Thursday last week, saying the currency remained unjustifiably high and was likely to fall further.

Those expecting the kiwi to gain by the end of the quarter expected the New Zealand economy will continue to outperform its overseas peers, underpinning demand for the currency, while those picking it to decline said the Reserve Bank may keep interest rates on hold for longer than anticipated with the risk it intervenes in the market to push the currency down. Other factors seen weighing on the kiwi are weaker growth from China, New Zealand's largest trading partner and the biggest market for many of the nation's key commodities, as well as continuing weakness in dairy prices.

The survey shows the trade-weighted index, which tracks the New Zealand currency against those of Australia, Japan, the US, the UK and the euro area, will likely be at 77 at the end of the quarter from 76.67 currently. Expectations in the BusinessDesk survey range from 75.5 to 80. That compares with the Reserve Bank's expectation for the TWI to average 78.4 over the quarter, according to its latest forecast published Sept. 11.


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