A weak world economy has been a key factor underpinning the New Zealand dollar, with New Zealand’s performance relative to other advanced economies supporting demand for New Zealand dollar assets. The New Zealand dollar exchange rate has been higher than the Bank had assumed for much of the period (figure 5).
The New Zealand dollar has remained elevated despite periods of increased risk aversion and steep declines in New Zealand’s export prices. The strength of the New Zealand dollar has dampened the prices of New Zealand’s imports, and contributed significantly to the current low inflation, particularly in the tradables sector.