Dollar playing havoc with commodities

Timber prices are starting to rise. Photo / Bay of Plenty Times

A green shoots recovery seen in rising international commodity prices is being eaten away by the value of the kiwi dollar, according to data from ANZ bank.

The ANZ Commodity Price Index, which measures a basket of products in the most relevant currency, increased for the third consecutive month in May, rising 2.7 per cent.

ANZ economist Steve Edwards said it was another example of a green shoots phenomenon.

The index had risen by 6.5 per cent from a low point in February, with prices for seven key exports gaining ground in May. Timber prices were starting to rise, which was a good indicator of how the world economy was performing, Edwards said.

"It's a step in the right direction but we do have to remember where it's coming from and it's [commodities in general] been declining for the last 12 to 18 months."

All the commodities tracked by ANZ, except for sheep meat, were lower than the same time last year. "We have seen two or three monthly rises across several of the commodities but they are all off considerably from where they were the same time last year ... but at least it's moving in the right direction and that's up."

Dairy company Fonterra's online sales auction this week recorded a 12 per cent drop in the average price for whole milk powder. Fonterra has said there was increased uncertainty because of United States subsidies and talk of European retaliation.

"If [Wednesday's] Fonterra auction does transpire to be some sort of fall in the dairy component, and dairy is about a third of our index, it's going to have a consequence," Edwards said.

Despite higher world prices the New Zealand dollar commodity price index fell for the third consecutive month, down 1.5 per cent, as the kiwi gained 5.1 per cent in value against the US dollar.

The monthly average for the survey was about US59c up towards US60c, he said. The exchange rate last night closed at US62.97c.

The Reserve Bank's monetary policy statement next week might rub off on currency markets, Edwards said. ANZ expected the exchange rate to fall back to the low US50c by the start of next year.

ANZ COMMODITY PRICE INDEX

GOING UP

Wool: +9.1 per cent

Beef: +6.1 per cent

Dairy: +5 per cent

Sawn timber: +4.1 per cent

HEADING DOWN

Seafood: -5.1 per cent

Logs: -4.6 per cent

Apples: -3.2 per cent