ASB sees dairy price fall hitting dollar, intererst rates
ASB’s latest Farmshed Economics Report says the sheer magnitude of the fall in dairy prices will have the beneficial effects of bringing down the New Zealand dollar (NZD) and holding interest rates at their current level.
“With dairy prices down by 37% on a year ago, the NZD has finally come under some pressure,” ASB rural economist Nathan Penny says.
“The NZD has passed its peak. We expect the NZD to trade at around 85USc for the rest of the year. The dairy price falls are also a major reason why we’ve pushed back our interest rate call.
“All up, these movements go some way to softening the income blow for dairy farmers over the year. In addition, they bring back some balance to the risk picture. The one-way traffic cannot continue indefinitely; any further dairy price falls should induce a lower NZD, less interest rate rises or both.”
The next OCR increase is expected in March 2015 rather than in December.
ASB also says the outlook for the meat sector remains bullish.
“While the lamb market is quiet, continued tight supply both here and in Australia points toward prices grinding higher over the season ahead,” Mr Penny says.
“Beef prices also continue to hold up at a high level. In fact, continued high prices appear to have given beef farmers enough confidence to increase the beef cattle herd for the first time in eight years.
"The kiwifruit sector is showing signs of recovering from Psa with export values for the June 2014 year well ahead of expectations.”