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New Zealand Economic and Financial Overview 2010

Foreign-Exchange Rates and Overseas Reserves

The New Zealand dollar has floated freely since March 1985. There are no exchange controls on foreign-exchange transactions undertaken in New Zealand, either by New Zealand residents or non-residents. Since the float, the Reserve Bank has held foreign reserves for the purpose of intervention in a crisis situation, when there may be no ‘market makers' in the New Zealand dollar.

In 2004, after consultation with the Minister of Finance, the Reserve Bank gained the capacity to intervene in the foreign-exchange market to influence the level of the exchange rate for monetary policy purposes. The Bank has noted that such intervention may occur when the exchange rate is exceptional and unjustified on the basis of economic fundamentals and when doing so is consistent with the Policy Targets Agreement. The Bank confirmed that it had intervened for this purpose on 11 June 2007 but does not generally comment publicly on such activity.

The Reserve Bank announced further changes to its financing and management of New Zealand's foreign-currency reserves in July 2007. Since the float in 1985, the Bank's foreign-currency assets had been fully matched by foreign-currency liabilities. Under new arrangements, the Bank holds some portion of its foreign reserves on an un-hedged basis - known as an "open FX" position. This means that part of the foreign reserves portfolio will be funded in New Zealand dollars rather than in foreign currencies.

The Bank's guidelines for operating in the foreign-exchange market have also been modified. Overt intervention intended to affect the exchange rate directly can still occur. In addition, the Bank is able to more gradually accumulate or reduce its foreign-exchange position when the exchange rate is at extreme levels and unjustified by medium-term economic fundamentals. The Bank's more passive foreign-exchange transactions will not necessarily be expected to directly affect the exchange rate.

Foreign-Exchange Rates

Foreign-Exchange Rates
Monthly Average U.S.A. Mid-rate
US$ Per NZ$
Japan Mid-rate
Yen per NZ$
Exchange Rate Index (1)
June 2005   0.7085 77.01 71.0
June 2006   0.6190 70.99 62.3
June 2007   0.7559 88.43 73.6
June 2008   0.7607 81.32 68.1
June 2009   0.6374 61.63 60.3
2009 July 0.6437 60.82 60.6
  August 0.6754 64.14 62.9
  September 0.7024 64.29 64.3
  October 0.7383 66.58 66.5
  November 0.7309 65.26 65.2
  December 0.7162 64.15 64.7
2010 January 0.7277 66.38 66.1

(1) The Trade-Weighted Exchange Rate Index is calculated on the basis of representative market rates for a basket of currencies representing New Zealand’s major trading partners. On 30 June 1979, the basket equalled 100.


Trade-Weighted Exchange-Rate Index
Trade-Weighted Exchange-Rate Index
Sources:  Statistics New Zealand

Overseas Reserves

New Zealand's official external reserves, as shown in the following table, include the net overseas assets of the Reserve Bank, overseas domiciled securities held by the government and the reserve position at the International Monetary Fund (IMF). New Zealand's quota at the IMF was Special Drawing Rights (SDR) of 895 million as of 30 June 2009 (approximately $2,126 million).

Overseas Reserves
  (dollar amounts in millions)
Last Balance Day in June Reserve Bank
Overseas Reserves(1)
Treasury Overseas
Reserve Position
at IMF(2)
Special Drawing
Total Official
2005 4,731.3 5,142.4 512.8 48.6 10,399.1
2006 9,877.2 6,344.5 250.7 48.6 16,264.8
2007 15,502.8 5,297.6 107.9 40.1 20,948.4
2008 19,936.7 5,510.6 142.1 34.8 25,624.1
2009 17,031.0 2,822.8 413.1 33.9 20,300.8

(1) Comprises foreign-exchange reserves and overseas investments of the Reserve Bank of New Zealand.

(2) Equal to New Zealand’s quota, less its New Zealand currency subscriptions and any reserve tranche drawings.

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