TWI to be calculated using 17 currencies, up from 5

The Reserve Bank is to introduce a broader currency basket to better reflect the changes in New Zealand's trading patterns.

From December 11 the bank will change the way it calculates the trade-weighted index (TWI), increasing the number of currencies included from five to 17.

Each currency would be weighted on direct bilateral trade with New Zealand and remove a reference to relative GDP, while including trade in services for the first time, the bank said.

The TWI had reflected the weighted average of five exchange rates since it was introduced in the 1970s.

The calculations measured the value of the New Zealand dollar against the US dollar, euro, Japanese yen, Australian dollar and British pound, capturing what were at the time New Zealand's main trading partners.

As trade has grown, particularly with China, these five countries now account for less than half of New Zealand's trade.

The new approach will include the exchange rates of countries that now account for more than 80% of New Zealand's foreign trade.

The updated TWI would include China, Australia, the US, the euro zone, Japan, Singapore, the United Kingdom, South Korea, Malaysia, Thailand, Indonesia, India, Canada, Taiwan, Hong Kong, Vietnam and the Philippines.

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