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Home / Business

Relief for onion growers as dollar tipped to fall

BusinessDesk
6 Jan, 2014 10:43 PM3 mins to read

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Under a gusty wind, a paddock of onions is harvested in Farndon Road near Clive. Photo / Warren Buckland, Hawke's Bay Today

Under a gusty wind, a paddock of onions is harvested in Farndon Road near Clive. Photo / Warren Buckland, Hawke's Bay Today

The New Zealand dollar may weaken in the first quarter of 2014, benefiting seasonal commodity exporters gearing up for the harvest, such as onion growers.

The kiwi, which recently traded at 82.88 US cents, is likely to slip to 81.50 cents by the end of March, according to the median forecast of 11 currency traders and strategists in BusinessDesk's quarterly survey of the New Zealand dollar.

Many onion exporters are taking forward cover now to fix currency rates for their overseas sales, which amount to about $90 million a year, making the vegetable New Zealand's third-largest horticultural export crop behind kiwifruit and apples. A stronger New Zealand currency has hurt sales of onions, 85 per cent of which are exported.

"The New Zealand dollar has been overvalued by our view of the world for the past 10 years and it has made life pretty hard going," said Michael Ahern, chairman of industry body Onions New Zealand. "We think we have done a pretty good job standing still and are quite match fit now. Should the currency move in our favour that would probably go straight to the bottom line."

About 45 per cent of onion exports are sold in euros, 5-10 per cent in yen, 5-10 per cent in British pounds and the remainder in US dollars, with freight also paid in US dollars, Ahern said.

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While early varieties of onions have already been lifted out of the ground to dry, the main seasonal thrust starts later this week heading into the packing and shipping period from early February with sales continuing through to the end of July.

The New Zealand dollar is predicted to decline in the first quarter on the expectation markets have already priced in local interest rate hikes and as a reduction in the Federal Reserve's stimulus programme boosts the greenback against most major currencies.

Expectations for the New Zealand dollar at the end of the quarter range from 78 US cents to 84 cents, according to the BusinessDesk survey taken Dec. 19-20.

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The kiwi, which recently traded at 92.44 Australian cents, will probably edge lower to 92 cents by the end of the quarter, according to the median of 11 forecasts in the survey. Expectations range from 90 cents to 94.30 cents.

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 78 from 78.32 currently. Expectations in the BusinessDesk survey range from 73.5 to 80. That compares with the Reserve Bank's expectation for the TWI to average 77.4 over the quarter, according to its latest forecast published Dec. 12.

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