Exchange rate new zealand,binary computer code,currency trading software for mac - For Begninners

18.12.2013 admin
No one model of the exchange rate can adequately account for movements in the New Zealand dollar over all time periods. Factors that affect the expected relative return on New Zealand dollar assets are found to explain a significant part of exchange rate cycles.
Interest rate differentials are an important driver of the exchange rate as they most clearly reflect the relative returns on holding New Zealand dollar assets. Note: G3 refers to an average of 90-day interest rates in Germany, Japan and the United States. The relationship between interest rates and the exchange rate also holds at the bilateral exchange rate level (see figure 14 for example). Over the previous decade, a combination of high New Zealand interest rates (due to strong domestic inflationary pressures and a high neutral real interest rate[17]) and low global interest rates led to large amounts of inward capital flows (Dunaway, 2009). The carry trade occurs when investors take advantage of interest rate differentials between countries. The inflows associated with the carry trade has exacerbated the New Zealand exchange rate cycle, as well as maintaining downwards pressure on local longer-term interest rates.
Cassino and Wallis (2010) also find that risk appetites have at times played the key role in driving the exchange rate during the global financial crisis and its aftermath. Roughly equal interest rate forecasts for both the US Dollar and New Zealand Dollar leave our yield-based bias near neutral for the NZDUSD. As with its Australian counterpart, the Kiwi remains highly overvalued (trading nearly 28 percent above its PPP-implied rate) and likewise appears vulnerable to a correction as deteriorating global economic growth expectations and the lingering Eurozone debt crisis weigh on market-wide sentiment.
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The continued appreciation of the New Zealand dollar has provoked considerable media and market interest since the start of the New Year.
Media commentaries have tended to focus on the substantial appreciation of the New Zealand dollar against the US dollar. Two key factors explain most of the appreciation in the New Zealand dollar on a trade-weighted basis from its trough in 2000 and continue to provide an explanation for more recent movements in the currency. US dollar weakness reflects a diminished appetite for US dollar assets following the bursting of the equity bubble and, perhaps more pertinently at present, low US dollar interest rates.


During the months ahead, the US dollar is expected to remain the major driver of movements in New Zealand's TWI. In this section, the paper first examines the factors that cause the exchange rate cycles or medium-term variability that has just been examined. The exchange rate is a key relative price, but another perspective is that it can be viewed as an asset price (Munro, 2004).
These include interest rate differentials between New Zealand and other economies, relative growth performance and attitudes to risk.
Figure 13 shows the broad relationship between the short-term interest rate differential[16] and the TWI over time. Carry traders would invest in an asset that has a higher expected rate of return than the costs of borrowing. Recent RBNZ work suggests that the carry trade has diminished somewhat in New Zealand in the wake of the global financial crisis, as other countries are now more attractive destinations for the carry trade (e.g.
For example, at the onset of the global financial crisis the Swiss franc (seen as a safe haven currency) appreciated while the New Zealand dollar (seen as a riskier currency) depreciated. The interest rate hike outlook that had previously insulated the Kiwi from aggressive selling has faded, with markets no longer pricing in any tightening over coming year. This approach says that an identical product should cost the same from one country to another, with the only difference in the price tag accounted for by the exchange rate. This note provides some background information on recent movements in the New Zealand dollar.
Recent comments from Federal Reserve officials suggesting that US interest rates will remain near historical lows for the foreseeable future have reinforced this sentiment. Recent declines in the yields on short-dated bonds suggest that the market's enthusiasm for a January rate hike has diminished, although this is still largely a timing issue rather than a downward revision to the extent of tightening expected to take place eventually. Such a view has become increasingly relevant as foreign exchange market turnover has come to be dominated by financial transactions.[15] This means that factors that influence capital markets are now likely to have a bigger impact on exchange rates. More fundamental drivers such as export commodity prices and the terms of trade, and productivity growth, will also drive New Zealand dollar returns, particularly over longer timeframes. In currency carry trading terms, investors would borrow in low interest rate countries (like Japan and Switzerland) to invest in higher interest rate countries (like New Zealand and Australia).


Australia, where rising interest rates have meant interest rate differentials have widened against funding currencies) (Cassino and Wallis, 2010). The note places recent exchange rate developments in a historical context and considers some explanations for current trends. As illustrated in Figure One below, since the start of 2003 the New Zealand dollar has actually depreciated against the Australian dollar and appreciated more modestly against currencies such as the euro. Generalised weakness in the US dollar has been the most significant factor in the appreciation of the New Zealand dollar, as has been the case for many other major currencies such as the euro, sterling and yen. Although exchange rates are notoriously difficult to forecast, there are few signs of the fundamental drivers of the New Zealand dollar today reversing in the near term. Nonetheless, with interest rates in New Zealand not at the historically low levels seen elsewhere in the world, the Reserve Bank retains considerable scope to maintain or even reduce interest rates should the rising exchange rate show signs of impacting more severely on real economic activity. The growth differentials between New Zealand and the rest of the world narrowed substantially during 2003, although in absolute terms New Zealand continued to grow faster than most other countries.
Uncovered interest rate parity is a long-run concept, where the exchange rate would be expected to move to offset any arbitrage opportunities created by interest rate differentials. Investors' risk appetite is a common driver of both the S&P equity index and New Zealand dollar denominated assets. We compare these values to current market rates to determine how much each currency is under- or over-valued against the US Dollar.
The out-performance of the New Zealand economy over the period from 2000 until 2003 has ensured that New Zealand has maintained a positive output gap (in very basic terms, demand exceeding supply) while most other countries are just closing negative output gaps. Encapsulating the relative growth performance of the economy, short-term interest rates in New Zealand remain higher than in most other developed countries and these differentials continue to encourage a healthy flow of funds into the region. This means that the exchange rate can remain high for long periods of time, particularly in countries with high interest rates.
Historically, currencies such as the New Zealand and Australian dollars have been heavily influenced by commodity prices.



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