NZD long-term fair value model: 0.80 – 0.81

This snippet via Bank of New Zealand (BNZ) on their  terms of trade adjusted purchasing power parity estimate of long term fair value for the NZD

  •  sits around the USD0.81-0.82 mark

BNZ cite yesterday’s ToT data:

and say that the data is lagging, 

  • doesn’t capture the surge in commodity prices we have seen this year
  • underpins the strong terms of trade dynamic that supports the NZ economy and valuations for the NZD. 

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ps. The purchasing-power parity (PPP) model of exchange rate valuation (this is a very brief explanation) says that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services in any two countries.

This snippet via Bank of New Zealand (BNZ) on their  terms of trade adjusted purchasing power parity estimate of long term fair value for the NZD
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