ANZ's World Commodity Price Index rose 0.7% m/m in May, up 1.3% y/y, driven by wool and aluminium. However, NZD strength offset gains for exporters.
ANZ Commodity Index Highlights Export Sector Dynamics
New Zealand's export-focused commodity markets showed mixed momentum in May, with ANZ's World Commodity Price Index rising 0.7% month-on-month and 1.3% year-on-year, led by wool (+75.3% y/y), aluminium (+49.1% y/y), and beef (+25.3% y/y). However, the NZD-denominated index fell 0.3% due to currency strength, underscoring the drag on exporter profitability from exchange rate movements.
Aluminium emerged as a key beneficiary of the Middle East conflict, with regional production down 35% from pre-conflict levels after a major smelter was damaged in March. Supply constraints from raw material import disruptions and port congestion have kept upward pressure on the metal, despite easing oil-linked inflation elsewhere. Wool prices hit their highest level since October 2011, buoyed by strong demand and constrained supply, while beef and lamb prices stabilized near record highs.
Dairy and Horticulture Show Mixed Signals
Dairy prices rose marginally (+0.1% m/m) but remain 11.4% below year-ago levels, reflecting ample global supply. Skim milk powder prices gained 25.8% y/y, offsetting a 29.2% decline in butter prices as the latter unwinds from prior peaks. The horticulture index climbed 3.4% as export produce reached international markets, with early-season pricing viewed as encouraging.
Forestry sector gains were muted, with in-market log prices up 11.9% since the conflict began but largely absorbed by elevated shipping costs. The NZD's appreciation against trading partners' currencies further eroded wharfgate returns, a trend likely to persist amid ongoing shipping disruptions.
Implications for NZD and Risk Sentiment
The divergence between global commodity prices and NZD-denominated returns highlights the currency's role as a headwind for exporters. Traders may monitor the Reserve Bank of New Zealand's (RBNZ) policy response, as elevated commodity prices could fuel inflationary pressures. However, the NZD's strength may complicate the RBNZ's efforts to balance growth and price stability.
Risk sentiment remains sensitive to Middle East developments, with aluminium and shipping costs serving as barometers for geopolitical tensions. Broader commodity markets may face volatility if supply chain disruptions intensify, though oil-linked inflation pressures have shown signs of easing.
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