Wool is New Zealand's 14th largest commodity export, worth an estimated $741 million in the year through November. Wool prices softened at the latest auction amid high seasonal supply from the 'main shear' shearing season from December to early February. Main shear typically accounts for about 60 percent of the annual crossbred wool clip. An increase in the New Zealand dollar since the last auction weighed on exporters, with the kiwi recently touching a 2 1/2 year high against the euro and close to its record.

New Zealand crossbred wool, which accounts for the majority of the country's production, plunged 3 percent as high seasonal supply and a strong local currency weighed on prices at the latest auction

Mid-micron and merino wool didn't trade at the latest auction. The price for 35-micron clean wool, commonly used for carpets, dropped to $4.95 per kilogram at this week's North Island auction, down from $5.10/kg at the previous auction on Dec. 18, according to AgriHQ.

AgriHQ agriculture analyst Ivan Luketina said that high seasonal supply typically weighs on prices at this time of year. However, currency movements since the last auction have moved against exporters too, especially for those exporting to Europe.

Another reason to hit the wool prices was slump in the price of oil, which has fallen to its lowest level in 5 1/2 years due to which alternative synthetic fibres, such as nylon for carpets, become cheaper.

Despite the potential for good fundamental growth from the US housing market growing this year, if synthetics are more favoured due to the oil price drops, it could well mean an overall decline in demand for wool.

Nevertheless, clean lamb wool prices have bucked the trend, rising 1 percent to $6.05/kg in the latest auction on demand from China for the fibre which is typically used in clothing.