Greenback slips to third in NZ’s expanded TWI, yuan at second

The US dollar’s weighting has slipped in the Reserve Bank of New Zealand’s new trade-weighted index, which adds the Chinese yuan to a line-up of 17 currencies skewed to Asia and intended to more accurately reflect New Zealand’s modern trade profile.

The expanded TWI represents the biggest overhaul of the currency basket since it was introduced in the 1970s  as the weighted average of five exchange rates – the greenback, euro, yen, Australian dollar and pound – that formerly accounted for the bulk of New Zealand’s trade.

As trade has grown, particularly with China, those five currencies and the economies they represent have shrunk in significance and now account for less than half New Zealand’s trade, assistant governor John McDermott said when the change was flagged in October.

The weights for the 17 currencies now included will be based on the two-way trade in goods and services between the foreign country and New Zealand, the central bank said. The Australian dollar is given the biggest weighting, at 0.2198, followed by the yuan on 0.2009, the US dollar at 0.1234, the euro at 0.1087 and the yen at 0.0631. Ten other Asian currencies have been included, along with the Canadian dollar.

The new weighting mean the TWI now reflects more than 80 percent of New Zealand’s foreign trade. It includes services for the first time, which accounts for 25 percent of total trade, the bank said.

The TWI-17 will have a base of Oct. 31 at 76.44, putting it in line with the existing TWI-5 that day. It will be backdated to January 1984.

The Reserve Bank said it would continue to update the TWI-5 for the coming year.

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