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New Zealand Economic and Financial Overview 2012

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 primarily 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 does not generally comment publicly on such intervention.

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 the 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 FX transactions will not necessarily be expected to directly affect the exchange rate. The Bank's net foreign-exchange position is disclosed publicly with a lag.

New Zealand's official external reserves, as shown in Table 18, include the net overseas assets of the Reserve Bank, overseas domiciled securities held by the Government and the reserve position at the IMF. New Zealand's quota at the IMF was SDR 895 million as of 30 June 2011 (approximately $1,725 million).

Table 18 - Foreign Exchange Rates
Monthly Averages USA Mid-rate US$ per NZ$ Japan Mid-rate Yen per NZ$ Trade Weighted Exchange Rate Index[1]
June 2007 0.7559 92.66 73.6
June 2008 0.7607 81.32 68.1
June 2009 0.6374 61.63 60.3
June 2010 0.6928 62.96 67.1
June 2011 0.8150 65.63 70.3
July 2011 0.8455 67.17 72.7
August 2011 0.8384 64.67 72.1
September 2011 0.8143 62.59 71.2
October 2011 0.7879 60.39 69.3
November 2011 0.7728 59.95 68.2
December 2011 0.7697 59.92 68.6
  • [1] The Trade-Weighted Exchange Rate Index is the nominal New Zealand-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. On 30 June 1979, the basket equalled 100.

Source: RBNZ

Table 19 - Overseas Reserves
  Reserve Bank Overseas Reserves[2] Treasury Overseas Reserves Reserve Position at IMF[3] Special Drawing Rights Total Official Reserves
Last Balance Day in June (dollar amounts in millions)
2007 15,502.8 5,297.6 107.9 40.1 20,948.4
2008 19,936.7 5510.6 142.1 34.8 25,624.1
2009 16,996.8 2,822.8 413.1 33.9 20,266.6
2010 19,724.3 2,755.2 370.6 1,822.0 24,672.1
2011 21,795.0 2,475.0 510.0 1,650.0 26,430.0
  • [2] Comprises foreign-exchange reserves and overseas investments of the Reserve Bank of New Zealand.
  • [3] Equal to New Zealand's quota, less its New Zealand currency subscriptions and any reserve tranche drawings.

Source: RBNZ and the Treasury

Figure 6 - Trade-weighted Exchange-rate Index
Figure 6 - Trade-weighted Exchange-rate Index.
Source: RBNZ
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