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The New Zealand dollar through the global financial crisis

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In this article, we examine the impact of the global financial crisis on the New Zealand dollar (NZD). The NZD fell, on a trade-weighted basis, by 35 percent over the period from 2007 to early 2009 during the peak of the crisis, and remains around 10-12 percent below its pre-crisis peak. The impact of the carry trade on the value of the NZD appears to have diminished, as international investors shifted their attention to higher-yielding currencies, such as the Australian dollar and the Brazilian real. There have also been several periods of market turbulence during the crisis, during which movements in the exchange rate have been driven primarily by declines in the risk appetite of international investors. These developments are consistent with the decline in liquidity in the NZD currency market compared to pre-crisis levels. Our regime-switching model of the NZD/US dollar (USD) exchange rate identifies several instances during the past three years when the key exchange rate driver has changed from relative interest rates to investors’ risk appetite.

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  • Enzo Cassino & Zoe Wallis, 2010. "The New Zealand dollar through the global financial crisis," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 73, pages 20-30, September.
    • Handle: RePEc:nzb:nzbbul:sept2010:2
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2010/2010sep73-3cassinowallis.pdf
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    References listed on IDEAS

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    1. Craig Burnside & Martin Eichenbaum & Isaac Kleshchelski & Sergio Rebelo, 2011. "Do Peso Problems Explain the Returns to the Carry Trade?," The Review of Financial Studies, Society for Financial Studies, vol. 24(3), pages 853-891.
    2. David Drage & Anella Munro & Cath Sleeman, 2005. "An update on Eurokiwi and Uridashi bonds," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 68, September.
    3. Marion Kohler, 2010. "Exchange rates during financial crises," BIS Quarterly Review, Bank for International Settlements, March.
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    1. Liu, Chih-Liang & Yang, Hsin-Feng, 2017. "Systemic risk in carry-trade portfolios," Finance Research Letters, Elsevier, vol. 20(C), pages 40-46.
    2. Gemma Mabin, 2010. "New Zealand's Exchange Rate Cycles: Evidence and Drivers," Treasury Working Paper Series 10/10, New Zealand Treasury.
    3. Lumengo Bonga-Bonga & Sefora Motena Rangoanana, 2022. "Carry Trade and Capital Market Returns in South Africa," JRFM, MDPI, vol. 15(11), pages 1-13, October.
    4. Yiuman Tse & Lin Zhao, 2011. "The Relationship between Currency Carry Trades and U.S. Stocks The article examines the relationship between daily returns of currency carry trades and U.S. stocks from January 1995 through September ," Working Papers 0005, College of Business, University of Texas at San Antonio.
    5. Daan Steenkamp, 2014. "Structural adjustment in New Zealand since the commodity boom," Reserve Bank of New Zealand Analytical Notes series AN2014/02, Reserve Bank of New Zealand.
    6. Willy Chetwin & Tim Ng & Daan Steenkamp, 2013. "New Zealand’s short- and medium-term real exchange rate volatility: drivers and policy implications," Reserve Bank of New Zealand Analytical Notes series AN2013/03, Reserve Bank of New Zealand.
    7. Zoe Wallis, 2010. "Global currency trends through the financial crisis," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 73, pages 28-37, December.
    8. Ashley Dunstan, 2014. "The interaction between monetary and macro-prudential policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 77, pages 15-25, June.
    9. Chris McDonald, 2012. "Kiwi drivers the New Zealand dollar experience," Reserve Bank of New Zealand Analytical Notes series AN2012/02, Reserve Bank of New Zealand.

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