New Zealand's terms of trade held at a 40-year high in the second quarter, as a high New Zealand dollar pushed down the price of imports, offsetting a decline in exports.
Terms of trade, which measures the quantity of imports the country can buy with a set amount of exports, edged up 0.3 percent in the three months ended June 30, from a previous quarterly gain of 1.8 percent in the first quarter of this year, according to Statistics New Zealand. The measure is at its highest level since September 1973. The quarterly gain compares with a forecast 2.3 percent drop in a Reuters survey.
The terms of trade was largely expected to have peaked in the first quarter, with economists expecting a correction as prices for dairy products, New Zealand's largest export, have tumbled some 40 percent at the GlobalDairyTrade auction since the start of the year. Last week New Zealand posted its first monthly trade deficit for the month of July, meaning more was coming into the country than going out, as the price of logs, the third largest export, dropped some 16 percent in the year. The series is now just 1.3 percent below its all-time high in the June 1973 quarter.
"For a change weak import prices, drove the terms of trade improvement, rather than improving export prices that we have seen in previous quarters," said Nathan Penny, economist at ASB Bank. "However, that record-high is set to live another day as we expect the terms of trade to fall from next quarter. The export price falls this quarter give just a taste of what is to follow."
In the second quarter New Zealand's trade weighted index, the Reserve Bank's preferred measure of the dollar against a basket of export partners' currencies, rose 1.9 percent. A rising dollar pushes down the price of both exports and imports, Statistics NZ said. The TWI was recently at 78.93, slightly higher than 78.88 immediately before the data was released.
