SOUTH-WEST dairy exports are set to become more competitive with the New Zealand’s currency on track to reach parity with the Australian dollar.
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The national currency fell to an eight-year low against the Kiwi dollar last week, with the Australian dollar buying roughly $NZ1.06 at the close of trade on Friday afternoon.
New Zealand has long held a competitive advantage against Australia in the dairy sector due to the difference in the cross rate but a residential building boom has bolstered economic conditions across the Tasman.
Financial analysts predict the New Zealand dollar could reach parity with its Australian equivalent within months, making it the first time since the Kiwi currency was floated by the David Lange government three decades ago.
United Dairyfarmers Victoria (UDV) president Kerry Callow said the dairy sector was mostly focused on the Australian-American exchange rate but believed the New Zealand dollar’s performance also played a part.
She said the national currency’s decline in value against a swag of international competitors had given the Australian dairy sector some wriggle room.
“The Australian dollar has bought about 1.20 New Zealand dollars, or thereabouts, for some time so it would be quite a change,” Ms Callow said.
“Whether it makes a big difference, we’ll have to wait and see,’’ Ms Callow said.
“I think the change in the New Zealand dollar has taken a lot of sectors by surprise, but they are one of the world’s largest dairy exporters.”
Reserve Bank of New Zealand is forecast to be the first Western economy to raise interest rates this year, while Australia’s central bank is likely to keep the cash rate on hold for the first half of 2014, increasing the likelihood of the two currencies reaching parity.
Ms Callow said the Australian dollar’s drop against the American greenback during the past 12 months had been a source of relief in the dairy sector.
“When the dollar was buying above parity at $US1.05 or $1.06 and so on, that was really constricting exports,” the UDV president said.
“Now that we’re back down around 90 or so US cents, it’s made things a lot easier when it comes to trading with most countries.”
The last time the Australian dollar traded below $NZ1.07 was December 2005.
alex.sinnott@fairfaxmedia.com.au
