AUDNZD - Five Year Lows

[winner69]

I've tended to notice that the dairy prices are more of a 'lead' and ht economy tends to catch up 4-6 months after said events occur. Just from my historic observation

Dingo, you might like to read this piece. Dickens is the best independent economist in NZ. If you had access to his subscription based reports as well you would get more in depth and fascinating insights into a raft of things. This one is free.

http://www.sra.co.nz/pdf/DairyPricesAug14.pdf

If busy this extract answers your question -

The right chart above compares the annual % change in the ANZ NZD Dairy Commodity Price Index with annual GDP growth. The overall correlation is -0.09, which isn't statistically different from zero (i.e. there is no correlation between GDP growth and dairy product price inflation). If we assume it takes around a year for changes in dairy product prices to filter though to spending, which is roughly in line with the left chart above, the correlation is -0.2 (i.e. the old drip-feed theory doesn't work either).

Since 1992 there have been seven significant falls in dairy product prices including the latest fall and in only one of these was there are recession and this was when the financial crisis struck in 2008/09 and had a major negative impact on a number of things.

Interestingly, between 1992 and 2007 the correlation between dairy product price inflation and annual GDP growth was -0.45 (for info on what correlations measure and how to interpret them use the link below). The inverse relationship is evident in the right chart above. All of the five significant falls in dairy product prices prior to 2008 coincided with above average economic growth. If the economists and media took the time to review the historical experience they should be greeting the latest fall in dairy product prices with enthusiasm in terms of what it might imply for economic growth. Clearly falling dairy product prices don't drive above average economic growth, but this is one of those wonderful counterintuitive situations that economics throws up from time to time.

[Beagle]

99.65 cents today based on trading in the overseas FX markets overnight.
Parity Party preparations pending.

[JBmurc]

Not looking forward to my next pay check

[Daytr]

A couple of comments regards previous posts. Interest rate differential is a key driver & government policy is making it difficult for the RBNZ. Adding fuel to the fire of the Auckland property market certainly won't help. The dairy price weakness is yet to filter through & Winner69, the problem with historical data is that it is historical. Previous comparisons don't allow for the huge up swing in production or price such that the impact of this last boom & bust will be like no other. The NZ economy will not just shake off $6Bln plus of revenue being wiped out. How long before exporters start screaming for help? One of the issues Australia had was their ccy stayed stubbornly high long after commodities had collapsed due to QE & zero interest rates in major economies. And now look what is happening in Australia. If it wasn't for immigration the housing market would collapse as well. Seeing an similarities to NZ?

[winner69]

A couple of comments regards previous posts. Interest rate differential is a key driver & government policy is making it difficult for the RBNZ. Adding fuel to the fire of the Auckland property market certainly won't help. The dairy price weakness is yet to filter through & Winner69, the problem with historical data is that it is historical. Previous comparisons don't allow for the huge up swing in production or price such that the impact of this last boom & bust will be like no other. The NZ economy will not just shake off $6Bln plus of revenue being wiped out. How long before exporters start screaming for help? One of the issues Australia had was their ccy stayed stubbornly high long after commodities had collapsed due to QE & zero interest rates in major economies. And now look what is happening in Australia. If it wasn't for immigration the housing market would collapse as well. Seeing an similarities to NZ?

Jeez daytr ......back to 70 cents later this year based on that?

Parity will be a distant dream then

[Daytr]

The view I posted is in regards the latter half of this year when I think we will see the impact of lower dairy on the economy. Anything can happen in the short term. For the sake of the economy we better see a lower ccy, otherwise things will get a hell of a lot worse. We are a export led economy, if the ccy doesn't cushion the blow of lower commodity prices as it has in the past due to having the highest interest rates in the Western World then watch out. This is what happened in Australia & the RBA did everything possible to drive their ccy lower and after a very stubborn delay its worked, but probably too late to avoid their economic slow down & potential recession.

[winner69]

Daytr, i think your comments spooked the market ......the NZD is falling this mornings......almost below 99 cents

[dingoNZ]

Daytr, i think your comments spooked the market ......the NZD is falling this mornings......almost below 99 cents

wait until 4.30pm.... I think we'll see 0.998+

[stoploss]

wait until 4.30pm.... I think we'll see 0.998+

Not today ......

[dingoNZ]

Not today ......

0.9827, rates HELD. As you were chaps