3 Jun 2014
Fresh 40-year high in NZ terms of trade - BNZ
FXStreet (Bali) - Craig Ebert, Senior Economist at Bank of New Zealand, shares his take on the fresh 40-year high in the NZ terms of trade released earlier today.
Key Quotes
"This morning’s March quarter terms of trade were about as robust expected, coupled, as they were, with strong headline gains in export and import volumes. This confirmed a fresh 40-year high in the nation’s terms of trade while providing sustenance to Q1 GDP growth calculations. Interestingly, today’s data seemed not good enough for the currency markets, with NZD remaining on the back foot, at least initially."
"As for the merchandise terms of trade, they increased 1.8%, making for an annual gain of 17.3%. This proved very close to the various market polls. The composition was no material deviation either, with export prices up 0.7% and import prices down 0.9%. So there was no surprise in the fact this “official” measure of the terms of trade scaled its highest level since the September quarter of 1973."
"Another 1.8% increase in Q2 would put it a squeak above the peak of June 1973, meaning clear air all the way back many decades (if not all the way back to 1861, if data-splicing can be trusted). However, we believe that won’t prove the juicy headline. The big fall in dairy prices since February virtually guarantees a fall in the OTI terms of trade measure for Q2 – indeed in the order of a 5% drop, we reckon. We expect a further moderation in Q3, mainly as the dairy price correction continues to “average in”."
Key Quotes
"This morning’s March quarter terms of trade were about as robust expected, coupled, as they were, with strong headline gains in export and import volumes. This confirmed a fresh 40-year high in the nation’s terms of trade while providing sustenance to Q1 GDP growth calculations. Interestingly, today’s data seemed not good enough for the currency markets, with NZD remaining on the back foot, at least initially."
"As for the merchandise terms of trade, they increased 1.8%, making for an annual gain of 17.3%. This proved very close to the various market polls. The composition was no material deviation either, with export prices up 0.7% and import prices down 0.9%. So there was no surprise in the fact this “official” measure of the terms of trade scaled its highest level since the September quarter of 1973."
"Another 1.8% increase in Q2 would put it a squeak above the peak of June 1973, meaning clear air all the way back many decades (if not all the way back to 1861, if data-splicing can be trusted). However, we believe that won’t prove the juicy headline. The big fall in dairy prices since February virtually guarantees a fall in the OTI terms of trade measure for Q2 – indeed in the order of a 5% drop, we reckon. We expect a further moderation in Q3, mainly as the dairy price correction continues to “average in”."