Drop in NZ dollar comes to rescue of NZ commodities. Picture/Sarah Ivey.
The 8.6 per cent per cent drop in the NZ/US dollar exchange since mid-April has come to the rescue for some of New Zealand's commodities and will not doing the tourism sector any harm either.
Over the last few months, the Kiwi has been hit by a string of middling economic data and confidence surveys suggesting that growth is on the wane.
At the time, the US dollar has rallied sharply, putting more downward pressure on the local currency, which traded at US67.5c on Friday - down from $74.8c in mid-April.
Chris Roberts, chief executive of Tourism Industry Aotearoa, said the exchange rate has a significant impact on international visitor spending and the success of the sector overall.
"There is a close correlation between the strength of the New Zealand dollar and international visitor spend," he said.
"When the kiwi dollar is strong, per visitor spend tends to decline, and when the kiwi dollar is weaker, per visitor spend goes up," he said.
Roberts said most visitors plan their holiday in their own currency and then endeavour to work within that budget.
"If an American visitor is prepared to spend US$10,000 in New Zealand and finds, because of a stronger US dollar that they get more kiwi dollars than they expected, they are happy to still spend that and have an extra special experience," he said.
Data out on Friday showed visitor arrivals were up by 3.8 per cent in the past 12 months. Roberts expected spending to be up by closer to 10 per cent over the same period, with the weaker NZ dollar is a big factor in that.
On the commodities side, Rabobank said the continued depreciation of the Kiwi, combined with a seasonal reduction in cattle kill numbers, led to a marginal increase in beef prices in June.
The NZ dollar had fallen by 3.5 per cent since the start of June, dropping below US68c for the fist time since June 2016.
"A weaker New Zealand dollar has helped to offset softer US imported beef prices, which are starting to trend downwards as supplies of US domestic beef increases," Rabobank said. The market for sheep meat is also robust, the bank said.
"Strong global demand, in conjunction with local procurement competition for declining supplies, ensured schedule prices continued to lift throughout June," the bank said.
Rabobank expects competition for the remaining lamb supply to continue to put some upward pressure on prices.
Dairy prices have been under downward pressure since mid April, around the same time that the Kiwi started to peel away.
Whole milk powder prices - which have the greatest bearing on farmgate milk prices - have dropped by over US$300 a tonne over that time.
However, the six US cent decline in the Kiwi dollar is likely to offset price weakness in the commodity, the rule of thumb being that a US1c movement up or down in the exchange rate equates to a 12c/kg movement in the milk price.
Fonterra's farmgate milk price, last adjusted in May, sits at $7.00 a kg of milksolids.
Most bank forecasts are a little below that - Rabobank's forecast is $6.80/kg and ANZ's is at $6.75/kg.
ANZ said farm-gate returns remain supported by favourable supply/demand dynamics and the lower Kiwi.
"New Zealand export prices appear to have benefited from recent trade tensions, but further escalation poses some risks," ANZ said in a report.
ANZ economist Miles Workman said the lower kiwi was a positive development for all New Zealand's export sectors, and for tourism.
The bank's view is that further depreciation is likely, based on interest rate differentials, as rates start to gain in other countries while New Zealand's remain static.
Workman said local economic data looked patchy. "At the same time, don't expect economic growth to roll over any time soon," he said.
Fiscal policy is expected to remain stimulatory over the next couple of years, he said.
"Inflation is low, and strong migration is supporting growth," he said.
Potential clouds on the horizon were the deteriorating world trade relations sparked by the trade war between the US and China.
Workman said declining world trade could stymie world economic growth - the growth that in turn generally drives New Zealand's commodity prices.
"So we will be following that very closely."