Bloomberg News

New Zealand Terms of Trade Fall Further on Stronger Currency

May 31, 2012

New Zealand’s terms of trade index fell for a third quarter as a stronger currency and weak global markets curbed returns from dairy, meat and aluminum exports.

The index, which measures the price of exports relative to imports, dropped 2.3 percent from the fourth quarter, when it fell 1.4 percent, Statistics New Zealand said in a statement in Wellington today. Export prices decreased 3.8 percent while import prices declined 1.5 percent.

New Zealand’s terms of trade are retreating from a 37-year high in the second quarter last year amid falling returns from exports, which make up 30 percent of the economy. Weak growth and tame inflation are reasons most economists surveyed by Bloomberg News predict the central bank will hold its benchmark interest rate at a record-low 2.5 percent until next year.

“The combination of a stronger New Zealand dollar and weaker global prices for soft commodities appear to have dragged the export index down,” Ben Jarman, economist at JPMorgan Chase & Co. in Sydney, said in a May 28 report. He expects no change in borrowing costs until the first quarter next year.

New Zealand’s dollar was little changed, buying 75.27 U.S. cents at 10:47 a.m. in Wellington. The terms of trade decline was less than the median 2.8 percent drop expected in a Bloomberg News survey of six economists.

In the first quarter, a trade-weighted measure of the New Zealand dollar calculated by the Reserve Bank rose 5.5 percent from the fourth quarter, the statistics agency said.

Export prices were led lower by dairy, meat and aluminum, today’s report showed. Butter prices fell 11 percent, cheese dropped 9.5 percent and meat declined 3.6 percent. The aluminum price index was the lowest since the second quarter of 2009.

Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, last month cut its forecast payment to milk suppliers for the year ended May 31, and said the 2012-13 payment would be even lower, because of weaker global prices.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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