Reserve Bank of New Zealand reweights TWI

Updated TWI Weights | Explanation

19 December 2002

In January 1999, the Reserve Bank revised the method used to calculate the Trade-Weighted Index (TWI) measure of the New Zealand dollar and announced plans to reweight the TWI annually. Accordingly, the Reserve Bank of New Zealand (RBNZ) will use revised TWI weights as of tomorrow, Friday, 20 December 2002.

Updated TWI Weights

Explanation

The TWI is based on the value of the New Zealand dollar (NZD) against the Australian, US, Japanese, UK and Eurozone currencies.
The TWI is 50:50 weighted according to:
· each currency area's share of New Zealand's merchandise trade (exports plus imports), normalised to total 100 percent; and
· each currency area's share of the combined nominal GDP of those 5 currency areas.
The RBNZ releases the TWI daily, using the exchange rates prevailing in the market at 11:10am. The 11:10am calculation tomorrow utilises the new weights and new scaling (IND) factor detailed above.
The scaling (IND) factor is calculated to prevent spurious shifts in the TWI that could otherwise occur as a result of the reweighting. By convention, the rescaling is done using the exchange rates prevailing at 11:10am on the day before the new weights are released, ie 11:10am today, 19 December. The new IND factor is set so that the TWI with the old weights is equal to the TWI with the new weights at that point in time.
The weights have been calculated on the basis of calendar year 2001 data.
Merchandise trade data are sourced from Statistics New Zealand.
Nominal GDP for each currency area is sourced from International Financial Statistics (IFS), published by the International Monetary Fund.
GDP shares are calculated using GDP measured in local currency units, converted into US dollars (using period average exchange rates from IFS).

On the basis of the exchange rates prevailing at 11:10 am on 19 December 2001, the TWI (with the old weights) had a value of 57.94. To set the TWI (with the new weights) at 11:10am on 19 December 2001 equal to this level, the new scaling factor is 56.8883.

The TWI formula, and other information, is available from our information release of 21 December 1998.