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RBNZ to introduce a broader TWI

FXStreet (Bali) - RBNZ has announced the introduction of a broader trade-weighted index (TWI) calculation.

Official release

The Reserve Bank is changing the way it calculates the trade-weighted index (TWI), Reserve Bank Assistant Governor and Head of Economics, Dr John McDermott, said today.

Dr McDermott said that the Bank periodically reviews the construction of the TWI. The last review was in 2007.

From 11 December 2014:

- The number of currencies included in the TWI will be increased from five to 17;

- The weights for each currency will be based on each country’s direct bilateral trade with New Zealand (currently calculated by putting equal weights on bilateral trade shares and the relative importance of each economy’s GDP); and 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.

Services represent around 25 percent 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 percent 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.

The Bank publishes a number of TWI series and the existing 5-country and 14-country series will continue to be available for analysts. The Reserve Bank will publish more detailed information in December.

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