Economists say further rises in dairy prices are likely to push the terms of trade towards highs not experienced since the early 1970s.
New Zealand's purchasing power against the rest of the world has risen for the first time in nearly two years, boosted by higher export dairy prices.
Official figures show its terms of trade rose by 4.1% in the first three months of the year compared with the December quarter, meaning more imports can be bought for every dollar of exports sold.
Higher dairy product prices pushed up the quarterly terms of trade for the first time in a year-and-a-half.
That is due in part to the drought, which saw dairy production ease back and push up prices.
Export prices rose 1.9% reflecting the higher prices for dairy products during the drought which had exacerbated the squeeze on global supply. Lower prices for meat partly offset the rise, though higher sales for meat contributed to increased export volumes.
Import prices fell 2.1% due to a higher New Zealand dollar.
Senior economist at ANZ Bank Mark Smith says the lingering impact of the drought, and signs that global dairy production is slowing, are expected to underpin further increases in the terms of trade in coming quarters.
"Given the recent strength we've also seen in commodity prices, the terms of trade still look on track to reach their highest levels since the early 1970s. So very much a good news story for New Zealand."
These factors, and signs global dairy production is slowing, are expected to underpin further increases in the terms of trade in coming quarters and lift it close to record highs.
The terms of trade had previously fallen for six consecutive quarters from their peak in 2011.
