Falling kiwi insulates exporters in August, pushing up local currency commodity prices

Wednesday 5th September 2018

A 2 percent decline in the kiwi dollar on a trade-weighted basis offset weaker global commodity prices in August, meaning local exporters registered an increase for the month.

The ANZ commodity price index rose 0.4 percent in New Zealand dollar terms last month, snapping two months of declines, and taking the annual gain to 8.9 percent. The kiwi dollar's trade-weighted index fell to 71.86 from 73.33 through August and was recently at 71.09, making local exports more competitive in overseas markets. That offset a1.1 percent decline in the global commodity price index, its third monthly decline. Commodity prices have fallen 0.5 percent over the past year.

"The NZD is doing its job and keeping exporter incomes afloat," ANZ Bank New Zealand chief economist Sharon Zollner said in a note. "To some extent, softer world prices are to be expected as global growth appears to be past its peak."

Government data this week showed New Zealand's terms of trade rose 0.6 percent in the June quarter, lagging behind expectations but still near a record high. Strong dairy and meat prices underpinned the measure, which shows the purchasing power of New Zealand's exports relative to imports.

Dairy prices fell at today's GlobalDairyTrade auction, with whole milk powder prices down 2.2 percent to US$2,821 a tonne. The Reserve Bank's forecasts are predicated on whole milk powder prices staying at US$3,000 a tonne.

ANZ's index showed dairy prices fell 1.4 percent in August and are down 7.9 percent for the year, led by a 21 percent slump in butter prices. Cheese prices have dropped 7.4 percent and whole milk powder prices are down 5.5 percent.

Zollner said a "solid recovery" appears to be under way with production up 8 percent in June and July and weather conditions appeared to set to stay favourable through peak milking in October.

"The global situation remains mixed: dry weather conditions pose a threat to Northern Hemisphere production; inventories are at decent levels, particularly in China; and while the global demand backdrop remains favourable, global growth is looking past its peak and the trade war has introduced uncertainty," she said.

Those dynamics prompted Fonterra Cooperative Group to last week lower its forecast farmgate payout 25 cents to $6.75 per kilogram of milk solids. Chair John Monaghan blamed increased production in Europe, the US and Latin America, combined with weaker demand from some emerging economies, for the downgrade.

The index showed meat and fibre prices fell 1.1 percent in August, while horticulture prices declined 2.9 percent. Forestry prices edged up 0.1 percent for a 12 percent annual gain as Chinese demand for logs persists. Aluminium prices fell 0.7 percent in August.

(BusinessDesk)

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