NZ export prices up 4.2% in August, but rising NZ dollar wipes out all gains since February

The prices of New Zealand export products saw their biggest rise in August in world price terms since prices began rising again in February, the latest ANZ Commodity Price Index shows. However, although this may provide some comfort to the nation's exporters, the rising New Zealand dollar has wiped out a 12.3% price increase in export commodity prices since February. The world price index rose 4.2% in August, and has risen 12.3% since February. However, the New Zealand dollar index fell 0.7% over the month and is down 12.5% from February as the New Zealand dollar rose against international currencies, namely the US dollar. The New Zealand dollar had been flirting with the 69 US cent mark in recent weeks although has fallen by just over 1 USc so far this month on fears global markets will slump in September and October. It is up from below 50 US cents in March and also recently hit 12 year highs against the British pound of around 41 pence. News yesterday that whole milk powder prices (which are measured in US$) rose 24% in August in Fonterra's latest internet auction caused some cheer for exporters. However exporters, along with Reserve Bank Governor Alan Bollard have expressed increasing concern about the dollar's strength. ASB economists today said they expect Bollard may cut the Official Cash Rate by 25 bps on September 10 by 25 basis points to a new record low of 2.25%, partly due to the stubborn NZ dollar. "The RBNZ has assumed for the past 6 months that the NZD will fall to a very low level and remain weak for several years. However, it has become increasingly clear that this may not be the case," the ASB economists said. "The impact on exports has yet to be fully felt, in particular the strength in the NZ dollar will make any export-led recovery very difficult." ANZ said that aluminium prices recorded a 15% lift (in world price terms) from July and now sat just above the long-run average of the series. "Pelt prices recorded a strong lift, also rising 15 percent from July, but prices have only recovered to a fifth of their historical average, as calculated since 1986. Lumber prices rose 8 percent in the month, wool prices increased 7 percent, dairy prices lifted 5 percent and log prices rose 4 percent. Seafood prices increased just over 1 percent," ANZ said. "Fruit prices typically decay at this time of the year as the Northern Hemisphere export seasons mature. Kiwifruit prices slipped 3 percent and apple prices eased 1 percent. Beef and lamb prices softened 0.3 and 0.5 percent, respectively."