By BRIAN FALLOW
Commodity prices resumed their slide last month after a respite in the two previous months.
ANZ's export commodity price index fell 0.7 per cent, largely reflecting weaker dairy prices.
The firmer exchange rate magnified the fall to 3.7 per cent in New Zealand dollar terms.
Dairy prices, which make up 36 per cent of the index, continued their decline last month, ANZ chief economist David Drage said.
This followed the European Union's move to increase export subsidies on skimmed milk powder and whole milk powder.
"This was partly in response to a rise in the US subsidy on skimmed milk powder to US$750 [$1700] a tonne as the US dairy export incentive programme sought to bridge the gap between US domestic and international prices," Drage said.
"But the US has now used the programme, for the current year to June 30 at least, to the maximum extent allowable under World Trade Organisation commitments, which has eased the pressure on the Europeans, with the result that the European Commission resisted calls by some member states to increase subsidies at their latest meeting in March.
"This in turn should ease some of the pressure on dairy markets through to the middle of the year, allowing prices to settle around current levels."
Commodity prices outside the dairy sector were mildly encouraging - either steady or firmer, Drage said.
"But it is still a very difficult world and we can't discount further weakness."
Although the kiwi dollar remains low by historical standards the pace at which it has risen over the past month has alarmed many exporters.
But Drage is sceptical that the recent strength will be sustained. Three previous rallies since the dollar's all-time low in October 2000 proved short-lived.
"We are not seeing compelling evidence of US dollar weakness.
"However, if the New Zealand dollar can manage to break the long-term downtrend in place since the highs in late 1996 with a sustained rise above 45USc then this is likely to herald the beginning of a more substantial move higher."
Export prices slip again
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