By BRIAN FALLOW economics editor
Export commodity prices eased last month but only slightly because, for a change, the exchange rate only nibbled at them.
Since the middle of last year commodity exporters have seen world prices rise but the gains devoured by an exchange rate rising even faster.
Last month the ANZ Bank's world commodity price index steadied, declining 0.1 per cent as higher prices for wood pulp, logs, lamb, beef, seafood and skins largely offset falls in timber, wool, aluminium, dairy products and venison.
That followed seven monthly increases in a row.
In New Zealand dollar terms the index, which covers about 60 per cent of total exports, fell 0.3 per cent.
"While the New Zealand dollar edged lower in March after peaking towards the end of February, on a month-average basis it was stronger against the US dollar (by 0.1 per cent) and the pound (1.8 per cent)," ANZ said.
In NZ dollar terms commodity prices are still 28 per cent below their peak in April 2001, most of which is explained by the dollar's resurgence rather than weaker world prices.
ANZ chief economist David Drage expects the exchange rate to remain volatile in the weeks ahead, driven by war news.
Longer-term, America's need to borrow money to pay for the war, coming on top of a large external deficit, will tend to drive up US bond yields and weaken the greenback, thereby putting upward pressure on the Kiwi dollar.
"But we do expect further gains from here will be more moderate than the rapid gains seen earlier in the year," Drage said, "and by virtue of that, arguably more manageable by the export sector."
Wood pulp recorded the steepest rise last month, 13 per cent on top of a 9.5 per cent gain in February.
Pulp prices are now 37 per cent up on a year ago, but that was a seven-year low.
Timber prices fell 4 per cent in March, reflecting a seasonal (winter) slowdown in the US construction market. While the Australian market is holding steady, declining building consents suggest a contraction in the second half of the year.
Dairy prices edged lower, the fall of 0.6 per cent ending seven consecutive increases since they hit a 15-year low last July.
War-related uncertainties dampened demand for commodities such as wool, and the key US beef market.
As a measure of spot prices, the ANZ index provides early warning of export incomes down the track.
Drage said the fall in commodity prices in New Zealand dollars was likely to be reflected in weaker export income in the months ahead.
But overall, the sector was robust and prices compared favourably with those of the last 15 years of last century.
Better outlook for exporters despite exchange-rate impact
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