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Economy in Brief

Currencies in Australia and New Zealand Continue to Strengthen
by Louise Curley February 4, 2008

Both the Australian and New Zealand dollars have rebounded, if somewhat irregularly, since the U. S. Federal Reserve Board started to lower interest rates in September, as can be seen in the first chart, showing the daily values of the two currencies for the past year or so. A longer term perspective is shown in the second chart where the broad J. P. Morgan effective nominal trade weighted indexes are shown. This chart shows not only that the appreciations of these currencies have been underway since the beginning of this decade, but it also shows that the appreciations have been widespread and not simply with the U. S. dollar.

While interest rate differentials are not the only factor in the relative value of one country vis-à-vis another, they are among the more important. The third chart shows the yield on a 2-year government security in the three countries. Interest rates in Australia and New Zealand have been substantially above those in the U. S and steady while those in the U. S. have dropped sharply since the Fed began to cut rates. As of January of this year the differential between the 2-year security in Australia and the U. S. was 4.25 points and in New Zealand and the U. S. security, 4.73 points.

AUSTRALIA AND NEW ZEALAND  Jan 31, 2008 Sep 7, 2007  Jul 24, 2007  Jan 31, 2007
Australian $  (U. S.$) .8968 .8259 .8841 .7740
New Zealand $ (U. S.$) .7884 .6889 .8069 .6856
Jan 2008 Sep 2007  Jan 2007  --
Australian Trade Weighted 2000=100 129.6 128.7 122.7 --
New Zealand Trade Weighted (2000=100) 140.4 135.1 135.9 --
2-Year Government Security  (EOP) %
Australia 6.63 6.43 6.15 --
New Zealand                           7.21 6.97 9.57 --
U. S. 2.48 3.97 4.88 --
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