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New Zealand Economic and Financial Overview 2016

Foreign-exchange Rates and Overseas Reserves

Foreign-exchange Rates

The New Zealand dollar has floated freely since March 1985. There are no exchange controls on foreign-exchange transactions undertaken in New Zealand. Foreign reserves are held primarily for the purpose of intervention in a crisis situation when, for example, there is significant dislocation and there may be no "market makers" in the New Zealand dollar.

The RBNZ has a limited capacity to intervene in the foreign-exchange market to influence the level of the exchange rate for monetary policy purposes. 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. However, the Bank's net foreign-exchange position is disclosed publicly with a lag, at the end of the following month.

The Trade Weighted Index (TWI), which is a basket of exchange rates for New Zealand's major trading partners, fell 28% between February 2008 and February 2009 on the back of monetary policy easing by the RBNZ, cushioning the economy from the global downturn.

As the outlook for global growth became more optimistic, the US dollar weakened and demand for commodities improved. As a result, the TWI appreciated rapidly from early 2009, rising from 52.3 in February to 66.5 in October, an increase of 27%. High commodity prices, as well as a relatively strong economy, resulted in further increases in the TWI to 72.1 in August 2011, before retreating to around 68.0 in December as global risk aversion increased and commodity prices eased.

The TWI received a further boost between late 2012 and mid-2014, driven by a surge in commodity export prices, large depreciation in the Japanese yen, softness in the Australian economy and monetary tightening by the RBNZ in March 2014. The TWI was at a post-float high of 81.9 in July 2014, which represents a 45% increase from its seven-year low of 56.6 in early 2009.

The TWI began to fall in the second half of 2014, but remained at a historically high level at the start of 2015. However, it has since depreciated further to be around 16% lower than its July 2014 peak. This fall was driven by large declines in dairy export prices and accommodative monetary policy.

The TWI is expected to remain broadly steady over the next couple of years. The New Zealand dollar is expected to appreciate further against the Japanese yen and the euro, as weak growth in Japan and the euro area leads to the potential for further monetary policy easing. At the same time, the New Zealand dollar is expected to fall further against the US dollar, as the US recovery becomes entrenched and monetary policy is tightened, and also against the Chinese yuan, which is partially pegged to the US dollar.

Table 18 - Foreign-exchange Rates
  US Mid-rate
US$ per NZ$
Japan Mid-rate
Yen per NZ$
Trade Weighted
Exchange Rate Index[1]

June Year Averages

2011 0.7576 62.92 69.61
2012 0.8050 63.33 72.57
2013 0.8221 72.14 74.97
2014 0.8309 84.00 78.93
2015 0.7774 88.86 77.92

Monthly Averages

July 2015 0.6990 86.50 72.97
August 2015 0.6652 82.00 70.41
September 2015 0.6549 80.73 70.32
October 2015 0.6334 76.12 68.77
November 2015 0.6670 80.05 71.80

Source: RBNZ

  • [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.
Figure 5 - Trade Weighted Exchange Rate Index
Figure 5 - Trade Weighted Exchange Rate Index.
Sources:  RBNZ, the Treasury

Overseas Reserves

New Zealand's official external reserves, as shown in the following table, include the net overseas assets of the RBNZ, 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 2015 (approximately $1,834 million).

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)
2011 21,795 2,475 510 1,650 26,430
2012 19,305 3,853 663 1,578 25,399
2013 19,334 1,041 713 1,570 22,658
2014 16,940 2,000 703 1,433 21,076
2015 22,772 1,464 573 1,669 26,478

Sources: RBNZ, the Treasury

  • [2]Comprises foreign-exchange reserves and overseas investments of the RBNZ.
  • [3]Equal to New Zealand's quota, less its New Zealand currency subscriptions and any reserve tranche drawings.
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