In this note we take a quick look at what the Chinese economic rebalancing could mean for NZ and the NZ dollar. There are many effects to consider, most of which are structural rather than cyclical in nature. Despite the negative impact of slowing Chinese growth, our overall findings are consistent with an ongoing positive influence from China on NZ’s terms of trade and external accounts. This is mostly thanks to China’s rampant demand for protein. This tends to support our long-held view that the long-run equilibrium value of the NZ dollar has shifted up. Our modelling suggests long-run ‘fair-value’ for the NZD/USD is around 0.7400. It could be even higher.
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