New Zealand has a small open economy which operates on free market principles. It has sizable manufacturing and service sectors complementing a highly efficient agricultural sector. New Zealand is highly dependent on the primary sector with commodities accounting for around half of total goods exports. Exports of goods and services account for around one third of real expenditure GDP (The Treasury of New Zealand 2010).
The determinants for its exchange rate are factors that affect the demand and supply of NZD which is basically the picture of its economic growth. The economic growth is described in economic variables such as productivity, inflation, real interest rates, consumer preferences, and government trade policy. Economic growth is also affected by non market variables, such as political risk and expectation on future exchange rate.
The economic and non economic variables will affect the demand and supply of NZD against USD. When demand and/or supply of NZD are more than USD’s, NZD will appreciate, vice versa.
|Table 1 | | |
| | | |
|Determinants of NZ Dollar's Exchange Rate in the Long Run |
| | | |
|Factors* |Change |Effects |
|NZ Inflation Rate |Increase |Depreciation |
| |Decrease |Appreciation |
|NZ Productivity |Increase |Appreciation |
| |Decrease |Depreciation |
|NZ Preferences... [continues]
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(2010, 12). New Zealand Exchange Rate 2005-2010. StudyMode.com. Retrieved 12, 2010, from http://www.studymode.com/essays/New-Zealand-Exchange-Rate-2005-2010-517252.html
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