Dairy prices are falling, reflecting the general trend of falling commodity prices (we will not touch on energy prices in this review for the time being. This is a separate topic). Thus, the price index for dairy products, prepared by Global Dairy Trade, reflecting weighted average price changes in percentage terms, again decreased in the previous reporting (2-week) period.

According to data released last Tuesday, it came out with a value of -4.1% (after falling by -1.3% in the previous two weeks). In general, prices for dairy products have been declining since mid-March. This is partly due to the Federal Reserve meeting that ended on March 16, at which it was decided to raise interest rates for the first time since July 2019. From March 2020 until March 16, 2022, the Fed's interest rate was at 0.25%. In the spring of 2020, Fed officials decided to cut interest rates sharply, also launching an active quantitative easing program to support the economy amid the unfolding coronavirus pandemic.

The economy of New Zealand in many ways still has signs of raw materials. Moreover, the main share of New Zealand exports falls on dairy products and food products of animal origin (27%, according to 2020 data), meat and edible meat by-products 13.5%, wood and wood products, charcoal 7.52%), and the main buyers are China, Australia, US, Japan. Accordingly, the slowdown in the economies of these countries leads to a decrease in the volume of imports of New Zealand products into them.

Meanwhile, New Zealand consumer prices jumped +6.9% (Y/Y) in the first quarter, the strongest increase in 30 years, and are expected to rise again (+8.0%) in the 2nd quarter.

The previously published consumer sentiment index in New Zealand in the 2nd quarter of 2022, according to Westpac, fell from 92.1 to 78.7 points against the forecast of growth to 100 points, and the trade deficit, according to the New Zealand Bureau of Statistics, rose to -9.52 billion dollars in May from -9.29 billion in April.

At the same time, the country's GDP in the 1st quarter of 2022 decreased to -0.2% (compared with market forecasts of 0.6% and 3.0% in the previous quarter). In annual terms, GDP decreased to 1.2% against the forecast of 3.3% and the previous result of 3.1%

The decrease in the indicator indicates a deterioration in economic activity and will be a deterrent factor for the Reserve Bank of New Zealand when considering a further increase in interest rates. This is a negative factor for NZD quotes, and, as we noted above, the slowdown in the economy with high and accelerating inflation increases the risks of stagflation in the New Zealand economy.

Nevertheless, it is expected that at Wednesday's meeting, the RBNZ will raise the interest rate again, and may also speak in favor of further interest rate hikes at the next meetings. The RBNZ will announce its decision on the interest rate, and market participants monitoring NZD quotes need to be prepared for a sharp increase in volatility during this time period.