Commodity exports and the New Zealand dollar: Looking beyond commodity prices

Abstract

Revenue from commodity exports is driven by prices as well as volumes of commodity exports. However, associations of commodity currencies with the latter have been largely ignored; furthermore, previous analyses have focused predominantly on aggregated commodity indices, which mask the linkages between currency exchange rates and individual commodities. To address this gap, we examine the short- and long-run associations of the New Zealand dollar (NZD), a commodity currency, with export volumes of important commodities: dairy and casein products (DC); meat, wool, and by-products (MWB); and forestry products (FT). Trend-cycle decomposition reveals that, in the long run, the appreciation of the NZD is associated with rising commodity export volumes. Nevertheless, in the short run, the exports of DC and FT are negatively correlated with the NZD.