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Treatment of exchange rates in the overseas trade and producers price indexes

A majority of the goods and services that New Zealand exports and imports are transacted in foreign currencies, so changes in exchange rates can have a significant impact on the overseas trade indexes. A decline in the value of the New Zealand dollar has an upward influence on both export and import price levels, and vice versa.

Value and quantity data used for calculating the merchandise price indexes are derived from Statistics New Zealand's overseas merchandise trade statistics, which are in turn processed from export and import entry documents lodged with the New Zealand Customs Service (NZCS) by exporters, importers and their agents.

Import transaction values in foreign currencies are converted to New Zealand dollars at the time entry documents are lodged with Customs. This means that import values given in foreign currencies have already been converted by the NZCS before Statistics NZ receives them.

Export data values received by Statistics NZ from the NZCS are in some cases in New Zealand dollars and in other cases in foreign currencies (eg United States dollar, Australian dollar and Euro). For export values in New Zealand dollars, Statistics NZ uses the values directly, and for export values in foreign currencies Statistics NZ converts the values to New Zealand dollars.

The merchandise export indexes use New Zealand dollar FOB (free on board) values. Statistics NZ converts FOB values given in foreign currencies into New Zealand dollars using weekly exchange rates compiled from banks. On the other hand, the merchandise import price indexes use New Zealand dollar VFD (value for duty) values. VFD values are converted to New Zealand dollars using exchange rates set by the NZCS. The NZCS exchange rates are prepared 11 days before the effective date and are then applied for two weeks. This means that the NZCS exchange rates, and therefore import prices, are slightly slower to show the impact of changes in the exchange rate than bank rates and the export prices.

Exchange rates used in the calculation of the services export and import indexes differ from those used for the merchandise indexes. Foreign currency prices feeding in to the trade services indexes are collected via Statistics NZ’s Commodity Price Survey. These prices are converted to New Zealand dollars using exchange rates for the relevant currencies supplied by Westpac for the fifteenth day of the middle month of the quarter. This is because the fifteenth day of the middle month of the quarter is the day for which respondents are asked to supply price quotes. This means that the price collection and exchange rate dates match.

The treatment of exchange rates used in the Producers Price Index (PPI) is the same as that used for the overseas trade services indexes. When calculating the PPI, prices collected on the fifteenth day of the middle month in the quarter are used to represent the entire quarter.

In export-dominated industries (eg dairy, crude oil), export prices are sometimes collected in foreign currencies, primarily US dollars. These prices are converted to New Zealand dollars using the buy exchange rate on the fifteenth day of the middle month of the quarter, from the Westpac website. On the other hand, prices collected for imported goods are often denominated in foreign currencies, which are converted to New Zealand dollars using the sell exchange rate at the fifteenth day of the middle month of that quarter. If the fifteenth day of the middle month of the quarter falls on a weekend or non-trading day, the exchange rate for the next trading day is used.

An alternative approach in the PPI would be to use quarterly average exchange rates to adjust foreign currency prices collected as at the fifteenth of the middle month of the quarter to New Zealand dollars.

With the quarterly overseas trade index and the PPI information releases, Statistics NZ provides exchange rate information in the commentary and tables, including the Reserve Bank's trade weighted exchange rates index. This information can help readers to understand more about the impact of exchange rate movements on the overseas trade index and the PPI.

Back to Price Index News: April 2009

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