Weaker kiwi dollar proves good news for NZ exporters

A 2 per cent 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 per cent in New Zealand dollar terms last month, snapping two months of declines, and taking the annual gain to 8.9 per cent. 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 a 1.1 per cent decline in the global commodity price index, its third monthly decline. Commodity prices have fallen 0.5 per cent 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 per cent 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 yesterday’s GlobalDairyTrade auction, with whole milk powder prices down 2.2 per cent to US$2821 a tonne. The Reserve Bank’s forecasts are predicated on whole milk powder prices staying at US$3000 a tonne.

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

Zollner said a “solid recovery” appears to be under way with production up 8 per cent in June and July and weather conditions appeared 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, 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 Co-operative Group to last week lower its forecast farmgate payout 25 cents to $6.75 per kg 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.