Kiwi Strength Takes Toll on Commodities Exporters

Kiwi Strength Takes Toll on Commodities Exporters

4 May 2016, 11:16
Roberto Jacobs

Kiwi Strength Takes Toll on Commodities Exporters

According to research firm ANZ, its commodity index declined -0.8% in April, down -16.8% from a year ago. Dairy items were particularly weak in April, with prices of butter, Cheese and Casein declining -5.1%, -1.1% and -5.9% respectively. Milk powder prices were relatively unchanged in April but other categories suffered due to high inventory buildup. US Cheese inventory reached 10 year high recently.

Headline prices were supported by price increase in some commodities, like lambs, skins, apples and aluminium.

But sustained recovery for exporters and economy to recover, dairy prices need to rise, which accounts for almost 40% of New Zealand’s overall commodity exports. Only in recent auctions, it has started showing some signs of recovery.

But that won’t do farmers any good as Kiwi strengthened this year, eroding the advantages of price recovery. In April, while global prices of commodities declined -0.8%, it fell around -2.8% in Kiwi terms. This year global prices have fallen just 1.6% but they are down -5.7% in New Zealand Dollar terms.

We expect, Reserve Bank of New Zealand (RBNZ) policymakers to attack Kiwi strength in the coming meetings.

New Zealand Dollar is currently trading at 0.689 against Dollar.

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