By BRIAN FALLOW economics editor
A weaker kiwi dollar and record world prices combined to push export commodity prices 4.9 per cent higher last month.
ANZ's world commodity price index rose 1.5 per cent in March to the highest level in the indicator's 17-year history.
Dairy prices which make up about a third of the index and which have climbed 58 per cent from their July 2002 low, have been a key influence on the overall index's rise since the middle of last year.
But over the same period lamb, wool, kiwifruit, wood pulp and aluminium prices had also rebounded, joined more recently by beef and logs, ANZ said.
The bank's chief economist, David Drage, said there seemed to be firm support for commodity prices at current levels. "But one factor suggests a bit of caution despite the strengthening world economy. Tight supplies have underpinned many of these markets," he said.
"In particular the Australian agriculture sector is still throwing off the shackles of two difficult years, rebuilding livestock numbers and so on. It may be some time yet, but as Australian production increases back towards more normal levels that will start to limit the potential for further gains."
Despite the improvement in world prices last year and into this year the rise in the kiwi dollar has dominated commodity returns.
Since July 2002 only dairy and kiwifruit prices had outpaced the ravages of the stronger New Zealand dollar, Drage said. And in the case of dairy prices the rebound was from a very low base, as returns had nearly halved in kiwi dollar terms between mid-2001 and mid-2002.
Against the United States dollar the average level of the New Zealand dollar last month was 4.5 per cent lower than in February. It also fell 2.6 per cent against the yen, 1.5 per cent against the euro, 2.4 per cent against the pound and even 0.8 per cent against the Australian dollar.
The lift in world prices combined with the weaker exchange rate to deliver the largest monthly increase in three years, 4.9 per cent, which leaves the index 1.8 per cent lower than a year ago.
ANZ believes the worst of the New Zealand dollar's rise is over.
But the primary reasons for the US dollar's weakness - its current account and fiscal deficits - had not gone away and could still potentially halt its recovery and the New Zealand dollar's fall, Drage said.
"But we believe a US dollar recovery will be supported by the prospect of the Federal Reserve starting to return interest rates to higher levels sooner rather than later now there are signs the US recovery is finally translating into employment growth."
The downward pressure a stronger US dollar would place on the kiwi dollar would be compounded by New Zealand's slowing growth and worsening external accounts.
The biggest increases last month were among forest products. Log prices rose 9.7 per cent, sawn timber prices rose 6.7 per cent and wood pulp prices rose 8.3 per cent.
Weaker kiwi, record prices boost NZ exports
AdvertisementAdvertise with NZME.