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Dairy prices have continued a good start to the year, increasing 1.1% on a trade-weighted basis in the GlobalDairyTrade auction this week.
The increase came on top of the 2% rise a fortnight ago and Westpac economists saw the general trend for prices heading up for the first half of the year.
The effects of the northern hemisphere drought continued to linger and, coupled with improving Asian growth, particularly in China, that was expected to support dairy prices, economist Nathan Penny said.
The trade-weighted index now stood higher than in the whole of 2012. Compared with the May low point, dairy prices were about 32% higher.
Benchmark whole milk powder prices led the way in this week's auction, increasing 2.8%, while anhydrous milk fat and cheddar also posted solid gains. Skim milk powder recorded a 0.3% fall, although that followed a 6% jump over the previous two auctions.
The high New Zealand dollar continued to ''take some of the gloss off'' rising dairy prices, Mr Penny said.
The result of the latest GlobalDairyTrade auction supported the BNZ's broader view that trends in New Zealand commodity prices would help underpin the New Zealand dollar this year, currency strategist Kymberly Martin said.