The raw data for the graph(s) below is available in a spreadsheet containing all key graph data (XLS 622KB).
Fig 1 — NZ dollar exchange rate & trade-weighted index — monthly average
Last updated: 29 August 2014
The US Dollar cross rate should be interpreted as one New Zealand dollar buying x US dollars. The TWI (Trade-weighted index) is the nominal NZ dollar exchange rate weighted 50/50 by New Zealand’s trade with its major trading partners and the nominal GDPs (in US dollars) of those countries. The graph shows monthly averages.
In October 2000 the New Zealand dollar reached record lows, dropping below 40 cents per NZD. However, after 2002, the currency strengthened considerably, reflecting a strong domestic economy, rising export commodity prices and associated increases in interest rates. The TWI behaved very similarly to the US dollar cross rate over most of the decade.
In 2008, continuing financial market uncertainties and a deteriorating global economic outlook saw many investors move into perceived ’safe-haven’ currencies such as the USD. As a result the NZD fell sharply against the USD and other currencies in the TWI (the Japanese Yen and Euro in particular), but these falls proved to be quite shortlived. In part that reflected the way in which New Zealand was hit less hard in the recession than many of the countries whose currencies make up the TWI.
Fig 2 — Nominal & real exchange rates
Last updated: 4 August 2014
Over the long haul, the New Zealand’s nominal exchange rate (trade-weighted index — the blue line) has tracked reasonably closely to New Zealand inflation relative to the inflation experienced in the domestic economies of our major trading partners (the red line) — as inflation has increased relative to that of New Zealand’s main trading partners, the nominal exchange rate has depreciated. In terms of the divergence from a long-run average (the black horizontal line = 100), the real exchange rate (the green line), which is the blue line divided by world prices/NZ prices (the red line inverted), has for most of the last forty years cycled within a range of ten percent either side of the long run average.