The New Zealand dollar broke US73c yesterday, leading to fears the country's tentative export-led economic resurgence could be knocked off balance.
Attention will be focused on the results of Fonterra's latest GlobalDairyTrade auction this morning to see if dairy prices continue to recover despite the New Zealand dollar appreciating more than US1c during local trade yesterday and 2c since 5pm Monday.
The kiwi at 5pm yesterday was worth 73.28 cents, having started the day at 72.02.
Recovering dairy prices contributed to September's ANZ Commodity Price Index recording its largest monthly rise in 22 years, capping off a 20% increase since hitting its lowest point in February.
A 33% increase in global dairy prices since February and a 17% increase in September, pushed up the index 6.8%, helped by price rises for seven other monitored commodity exports.
Westpac economist Doug Steele expected today's milk powder auction prices to retain the 50% gain of the past two sales, but he said any additional increase would be smaller in magnitude.
Milk powder was traded in US dollars, which have been weak, and Mr Steele said this could put some upward pressure on prices.
Mr Steele said the strengthening exchange rate and higher dairy prices reflected growing consumer confidence and the improved health of the world economy, which led to greater demand for products.
"I often think people get the New Zealand dollar and economic performance the wrong way round.
"They think when the New Zealand dollar is high it means economic performance is bad, whereas I think it's the other way round.
"The economy and outlook has improved quite rapidly which is why the New Zealand dollar is up."
While a high dollar affected returns when transferred into New Zealand dollars, Mr Steele said it also kept a lid on costs and was a sign the economy was strong.
He said the index for September rose despite the high dollar, evidence that the global economy was picking up, customers were buying our products and growing our wealth.
According to the index, last month the price of skins rose 8.3%, sawn timber 7.2%, wool 5.3%, wood pulp 3.1%, lamb 2.3%, beef 2.2% and kiwifruit 0.4%.
Apples fell 5.7%, aluminium 4% and logs 3%.
ANZ economist Steve Edwards said in New Zealand dollar terms, the index rose 2.4% as international price increases were stronger than the appreciating dollar.
