Question 4 Which factors can explain the recent exchange rat

Question 4

Which factors can explain the recent exchange rate movements of the New Zealand dollar to Australian dollar?

Solution

1) New Zealand had a general election in 2017, and thus, there was a change in the government. The labor government came in power and adopted stricter industrial policies. Due to this the confidence in the business has weakened and thus, New Zealand dollar may have weakened.

2) Effect of Monetary Policy - the Reserve Bank of New Zealand keep the inflation between 1% - 3%, which also affect exchange rate movement.

3) Another thing is both, New Zealand dollar and Australian dollar, are heavily dependent on U.S. dollar as they are traded heavily against U.S. dollar.

4) Also, the strict policies adopted by U.S.A. in recent times are affecting exchange globally, and recent ban on few exports of China and EU is affecting New Zealand dollar and Australian dollar.