New Zealand's terms of trade rose by 1.3% in June

New Zealand's terms of trade rose by 1.3% in the June quarter, following a downwardly revised 1.2% rise in the March quarter. The result was in line with the forecast of a 1.1% increase.

This result may seem odd given the backdrop of weak commodity prices, but is easily explained as a quirk of timing. World dairy prices briefly spiked in February-March this year, on concerns that a drought would curtail milk production in New Zealand (as it turned out, the drought was less severe than expected and dairy prices promptly fell again). Since there is typically a lag of around three months between price-setting and shipment of the dairy exports, this resulted in a 6% rise in dairy export prices over the June quarter. This will head lower again over the second half of this year.

Aside from dairy, export prices were mixed. Prices rose for wool, fish and manufactured goods, but fell for meat and wood. Overall, export prices were up by 2.1%.

Import prices rose by 0.7%, a little less than expected due to a surprisingly small rebound in petroleum prices (up just 4%, after a 29% plunge last quarter). Manufactured goods prices were little changed, down 0.1%.

The weaker NZ dollar had a muted impact on trade prices. The NZD trade-weighted index was down 2.1% on average over the June quarter, which is a fairly small movement relative to history. The exchange rate will have a more dramatic impact on trade prices over the second half of this year.

The terms of trade report also provides a breakdown of trade volumes. Export volumes fell 0.2%, again largely due to the short-lived drought (dairy export volumes down 4%). Volumes also fell for meat and manufactured goods. Import volumes rose 0.4%, with a big spike in petroleum imports (up 17.9%), but a fall in imports of manufactured goods. Overall, these figures have no implications for the forecast of June quarter GDP - currently a 0.7% increase is expected.

There was no market reaction to this release. While the result was stronger than other forecasters had expected, it is typically a low-priority release for financial markets, given that it only reflects developments in commodity prices (especially dairy) with a sizeable lag.