Record trade surplus driving dollar

Record $1.1 billion April surplus; pictured, a lone Maniototo dairy cow, to a back-drop of the snowbound Kakanui mountains and dairy exports being loaded aboard the Maersk Dunafare at Port Chalmers. Photos by Craig Baxter (top) and Gerard OBrien.

The strength of the kiwi, which hit US81.76c yesterday, appears set to be further boosted by a combination of strong commodity prices and further weakening in the US dollar.

New Zealand's monthly goods trade surplus hit a record high for April as exports grew faster than imports, producing a trade surplus of $1.1 billion, when analysts were expecting just $600 million.

While dairy farmers are reaping the benefits of strong global commodity prices, they are also hit harder when US dollar denominated commodities are converted into New Zealand dollars.

Imported consumer goods should benefit from from the higher kiwi, but hedging programmes for manufacturers trying to smooth out the kiwi's volatility will become strained and an expensive option.

The $1.1 billion surplus is the largest for a year ending in April since 1994, data released by Statistics New Zealand revealed yesterday.

"This is the highest monthly surplus ever recorded and the highest in almost 20 years as a percentage of exports," Statistics New Zealand overseas trade manager Neil Kelly said in a statement yesterday.

Merchandise exports rose $691 million, or 17%, to $4.7 billion while merchandise imports were up $238 million, or 7.2%, to $3.5 billion for the period.

Craigs Investment Partners broker Peter McIntyre said the $1.1 billion surplus "blew economists' predictions out of the water", coming in about $500 million ahead of consensus forecasts for April.

Since floating 26 years ago, at US44.44c, the kiwi hit a record against the greenback of US82.13 in March 2008, but after yesterday's merchandise trade news, it steadily traded up and closed at 5pm at US81.74, having briefly touched US82.17 earlier.

The kiwi was bolstered last week by signs that China's sovereign wealth fund, the Chinese Investment Corporation, might invest up to $6 billion here, also making New Zealand a more attractive destination for investors world-wide.

ASB economist Jane Turner said the annual trade balance of $1.1 billion was up from $730 million in March, with record high exports underpinning the surplus.

"The strength in the trade balance was largely due to a very impressive export performance over April.

"Indeed, the strength in exports also appears to be relatively broad-based, through a range of export categories, and fundamentals for a strong export performance remain positive for the future," Ms Turner said.

The export data strength, particularly in commodities, highlighted the export-led nature of the economic recovery.

ANZ chief economist Cameron Bagrie said last week's Fonterra record payout forecast of $8 to $8.10 per kilogram of milk solids continued the "good news" for the rural income generating part of the economy.

"This week's export-centric data is expected to re-emphasise this positive to medium term theme," he said in a statement yesterday.

The National Bank business confidence survey is due out today, followed by tomorrow's results of Fonterra's online globaldairytrade auction, overseas trade indexes and ANZ commodity price index.

However, Ms Turner said despite the income increase for the rural sector, that sector had remained "relatively cautious", opting to reduce debt rather than increase investment and other spending, which in turn "muted the stimulatory impact on the remainder of the economy".

Mr McIntyre noted that although the kiwi had made gains against the Australian dollar, retracing from a low of A72.82 in March this year to trade around A76.61 yesterday, it remained "historically low", compared to an October 2008 high of A92.71.

"That remains very good news for exporters to our biggest trading partner," Mr McIntyre said.

He highlighted US GDP data out last week, which had forecast 2.2% GDP growth but came in at a disappointing 1.8% growth.

Sending further tremors through the market is the implementation of the US Government programme to introduce its "quantitative easing III" plan into the US economy, with the release of more major funding to underpin recovery.

"This [quantitative easing] is likely to see the US dollar pushed even lower, as more cash enters the economy," Mr McIntyre said.

He said the high kiwi remained a "double-edged sword", for the economy.

Manufacturers were expected "feel the pinch" in coming months as hedging programmes to soften the kiwi's volatility either end, or become too expensive.

At a glance

Merchandise trade surplus of $1.1 billion, or 24% of the value of exports for April.

Exports: Milk powder, butter, and cheese commodity group the major contributor to the increase in the value of exports, led by unsweetened whole milk powder.

Imports: Petroleum and associated products led the increase in the value of imports, up $134 million, or 27%.

SOURCE: Statistics New Zealand