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NZ wool prices rise in first auction of 2016, underpinned by lower kiwi dollar

Friday 8th January 2016

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New Zealand wool prices rose at the first auction following the Christmas and New Year holiday period, helped by the lower New Zealand dollar.

The price for clean 35-micron wool, a benchmark for crossbred wool used for carpets and accounting for the majority of New Zealand's production, rose to $5.80 per kilogram at yesterday's North Island auction, from $5.70/kg at the previous combined North and South Island auctions on Dec. 17, according to AgriHQ. 

Wool auction volumes have increased, reflecting a peak around the main shearing season from December to early February, with 98.5 percent of the 13,700 bales on offer cleared at yesterday's event. There are signs buyers are starting to baulk at higher prices, which have been bolstered by lower supply amid a decline in the national sheep flock. Lamb wool, which has been hitting record prices, slipped back to $7.30/kg from $7.40/kg at the previous auction.

"The higher volumes signal that we are well into the peak season, and the larger volumes mean some prices have eased," said AgriHQ analyst Emma Dent. "Overall the weaker New Zealand dollar at this auction underpinned the market and saw most types hold firm or increase."

A lower New Zealand dollar makes the country's exports cheaper for overseas buyers. The New Zealand dollar has shed 2.7 percent so far this year as investors eschew higher risk assets and commodity currencies on concern about a slowdown in the Chinese economy and rising tensions in the Middle East. It recently traded at 66.50 US cents. 

"New Zealand wool is still considered overpriced by the international market," said AgriHQ's Dent. "There has been almost two years of higher prices and exporters are now seeing signs of resistance from the international market to these higher levels. The market in coming weeks is expected to be patchy, with some wool types expected to hold strong prices while others are expected to ease."

Wool faces rivalry from synthetic fibres, which are likely cheaper due to a decline in the price of oil. 

"With importers starting to look to cheaper markets, the overall market direction for New Zealand wool is expected to be down in order to maintain a strong position in the international market," Dent said. "The lower New Zealand dollar has had a positive impact for both local and offshore buyers and will be something to watch closely in coming months."

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