According to my data, Trade Weighted Index decreasing, but Terms of Trade increasing... is this possible?

Question

My graph shows, the New Zealand dollar is depreciating, but our Terms of Trade are increasing. What does this mean? I've been thinking about it for hours. If the dollar is falling, it means our exports will increase, and out imports decrease. But, in my data, this "trend" of the twi decreasing and tot increasing, continued for a few months. I don't get it - if exports increased then demand for the New Zealand dollar would increase, and it would once again appreciate. But like I said in my graph the NZD kept depreciating. Then I'm confused because tot is really about the PRICE of exports and imports. So if terms of trade increase, doesn't that mean price of exports have increased? In other words, appreciation? But like I said, the dollar continues to depreciate. I'm so confused. HELP!

Answer 1

First thing you should do there is to switch from nominal economy to real - that is sort out inflation for both countries (or all involved in calculation).

Second thing is - that there could be speculations involved in currency exchange markets (also many other factors could have effect).

Thirdly - in theory all events are predicted for "ceteris paribus" conditions. But international demand for goods and services may grow/fall faster than depreciation of domestic currency, there could be structural changes in different economy, they may fall into recessions, regress or grow faster slower from GDP perspective. They may switch more or less to international trade or use domestic resources.

Another thing - you have taken too short period and may be missed out seasonal fluctuations, for instance in some agrarian countries export is record-high for one quarter and close to zero for rest of the year.

All in all there is too many additional factors involved and al may move in opposite directions compensating/multiplying/offsetting each-other. Real world is very volatile and it's dynamics is unpredictable especially under current conditions of global events.