Weights for the TWI

As foreshadowed in the press release of 30 September 1998 (No. 98-13), the Bank will revise the weights used to calculate the trade-weighted index (TWI) for the Australian dollar from 4 January 1999 in order to incorporate the euro. While the TWI is normally reweighted once a year - at the end of September - the Bank considers the introduction of the euro of sufficient importance to world markets to justify a one-off reweighting.

The composition of the TWI is determined by Australia's two-way trade with its major trading partners. Currencies sufficient to account for at least 90 per cent of aggregate trade are included. In calculating the TWI, EMU participants will be treated as a single trading partner. In other words, the weight of the euro will reflect Australia's two-way trade with all EMU participants, not just those whose currencies are currently included in the TWI on the basis of their individual trade with Australia. This means that the euro will replace the currencies of Germany, Italy, France, Belgium, Luxembourg, the Netherlands and Spain in the index, but its weight will also reflect trade with Austria, Finland, Ireland and Portugal, whose currencies are not currently included. As with the current TWI, weights will be based on trade in the 1997/98 financial year.

The euro will enter the index from 4 January with a weight of 12.95 per cent, compared with combined weights of the euro "legacy" currencies in the current TWI of 11.46 per cent. As a result, the weights of all other currencies in the index will decline slightly and one currency - the United Arab Emirates dirham - will drop out. The reweighting of the TWI will not result in any change to the level of the index.

The new weights for the trade-weighted index are shown in the attached table.