sign up log in
Want to go ad-free? Find out how, here.

RBNZ lifting currencies included in TWI to 17 from 5, adding data on trade in services, and weighting currencies on each country's direct bilateral trade with NZ

Currencies
RBNZ lifting currencies included in TWI to 17 from 5, adding data on trade in services, and weighting currencies on each country's direct bilateral trade with NZ
<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

The Reserve Bank is changing how it calculates the Trade-Weighted Index (TWI), by increasing the number of currencies included in it to 17 from five and adding data on trade in services.

Another change will see the weights for each currency based on each country’s direct bilateral trade with New Zealand instead of the current situation where they're calculated by putting equal weights on bilateral trade shares and the relative importance of each economy’s GDP.

Reserve Bank Assistant Governor and Head of Economics, John McDermott, said the changes followed a reviews of the TWI's construction. The previous review took place in 2007.

From December 11 this year the number of currencies included in the TWI will be increased from five to 17. Data on trade in services will be included in the calculation of the weights for the first time.

"Since it was introduced in the 1970s, the TWI has been a weighted average of five exchange rates (currently the United States, Australia, Japan, United Kingdom, and the euro zone), capturing countries that formerly accounted for the bulk of New Zealand's trade. As trade has grown, particularly with China, these five countries now account for less than half of New Zealand’s trade," McDermott said.

"Services represent around 25% of New Zealand’s total trade. Historical services trade data by country has recently become available, enabling the Bank to include services trade in the calculation of the TWI weights."

"The new approach will include the exchange rates of countries that now account for more than 80% of New Zealand's foreign trade, being: Australia, China, United States, Euro zone, Japan, Singapore, United Kingdom, South Korea, Malaysia, Thailand, Indonesia, India, Canada, Taiwan, Hong Kong, Vietnam, and the Philippines," McDermott added.

The Reserve Bank's range of current TWI series including the five country and 14 country series will continue to be published and available for analysts.

McDermott said the Reserve Bank will publish more detailed information in December.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.