UBS Favors New Zealand Dollar After RBNZ Delivers Rate Hike

UBS has established a favorable view on the New Zealand dollar (NZD) in its global foreign exchange strategy, according to a recent research note. The bank is recommending that investors seeking to diversify away from the U.S. dollar hold the kiwi on an unhedged basis.

RBNZ Tightens Policy

The recommendation follows a decision by the Reserve Bank of New Zealand (RBNZ) to raise its official cash rate by 25 basis points to 2.50%. The move, which was the central bank's first rate hike in three years, was in line with consensus market expectations.

In its accompanying statement, the RBNZ signaled that further policy tightening will likely be necessary. The central bank stated that current settings remain accommodative and that it is committed to bringing inflation back to the 2% midpoint of its target range.

UBS Investment Thesis

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In light of the RBNZ's hawkish stance, UBS has also recommended a short position on the Australian dollar versus the New Zealand dollar (AUD/NZD). The bank's specific trade parameters are:

• Target: 1.18
• Stop-loss: 1.24

The trade suggests UBS anticipates the RBNZ's policy tightening will outpace that of the Reserve Bank of Australia, strengthening the NZD relative to the AUD. UBS analysts noted they expect the RBNZ to deliver its next rate hike in September.