New Zealand commodity prices in United States dollars have fallen 10% since their peak in March but in NZD terms the fall has only been 4%, ASB economist Nat Keall says.
The cause of the lower value of the NZD is extreme risk sentiment, including the covid slowdown in China, the Ukraine war and the aggressive interest rate hikes being signalled by the US Federal Reserve.
“These themes have got markets worried about the global growth outlook and last week these concerns intensified.”
The NZD is a pro-cyclical currency, which means it tends to rise when there is optimism about the global outlook and fall when moods are more pessimistic.
“The current low level of the NZD is out of proportion with the fundamentals and the currency will no doubt bounce back over time, but the near-term headlines will probably reinforce the prevailing mood.
“Market volatility continues to support the USD given its status as the archetypal safe-haven asset.
“After its tumble over the previous fortnight, the NZD shed another US cent to finish last week towards the bottom of its 62c to 64c range.
“Weaker risk sentiment has offset much of the impact on farm gate returns via the NZD – sometimes a little anxiety isn’t all bad,” Keall says.
The current two-year low for the NZD of US62-63c is a drop of 12% since April.
He says that external factors are strongly influencing the NZD and that anything in the 2022 Budget would not have a major influence.
ANZ economist Susan Kilsby says high NZ commodity prices are usually linked to a stronger NZD.
But the present lower value NZD is being driven by external factors like the Ukraine war and the covid lockdowns in China, not our high commodity prices.
AgriHQ analysts say the NZD had dropped US1.5c in the past fortnight and was 13% below this time 12 months ago, when the exchange rate was US72c.
In recent weeks the softening of the NZD had helped offset some weakening in red meat export prices.
The currency benefit is most extraordinary in relation to NZ beef and lamb exports to the US.
In-market prices for 90CL and 95Cl boneless beef have risen 8-9% over the past year.
Exchange rate-applied prices, when converted to NZ$/kg from US$/lb, have risen 24-25%.
For lamb racks sold to the US the in-market price has increased by 63% and the converted NZD price has risen 87%.
