Rising dollar hits commodity exports

By BRIAN FALLOW

For the third month in a row the rising dollar wiped out the benefit of higher world prices for New Zealand's export commodities.

ANZ Bank's commodity price index rose 2.2 per cent to an eight-year high in world price terms last month, but fell 0.8 per cent where it counts - in New Zealand dollar terms - to hit a 4 1/2-year low.

Over the past year the world index has risen 10.8 per cent but when converted to New Zealand dollars it has dropped 7.6 per cent.

ANZ chief economist David Drage says that in New Zealand dollar terms commodity prices have fallen almost a third from their peak in April 2001 and are now the lowest they have been since August 1999. But they remain close to their average levels over the 1990s.

Foreign exchange hedging by major exporters continued to mute and delay the impact of the higher dollar on export incomes, Drage said. But as that cover rolled off the impact would be felt and contribute to slower growth in the economy over the next couple of years.

The largest increase last month in world price terms was in sawn timber as prices in the United States clawed their way back from lows last year, ANZ said. The Australian market was steady.

Skins and hides rose 6 per cent. Dairy prices rose 3 per cent to be 14 per cent up on a year ago.

"Supplies have been tight throughout the current season, due to the lingering influence of the Australian drought last year, which meant there were no carry-over stocks as the industry moved into the current season," ANZ said.