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UBS Favors New Zealand Dollar Following RBNZ Rate Hike
UBS maintains a favorable view of the New Zealand dollar, citing the Reserve Bank of New Zealand's recent interest rate increase and its signal that further monetary tightening is likely. In a research note, the investment bank identified the currency as an attractive option for investors seeking to diversify away from the U.S. dollar.
Central Bank Delivers Expected Hike
The Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 25 basis points to 2.50%, a move that was in line with consensus market expectations. The decision marked the central bank's first rate hike in three years.
In its accompanying statement, the RBNZ assessed its current policy settings as accommodative. The bank signaled that further tightening would likely be required to guide inflation back toward the 2% mid-point of its target range, a hawkish stance that provides support for the currency.
UBS Outlines FX Strategy
AdFollowing the RBNZ's announcement, UBS recommended that investors hold the New Zealand dollar on an unhedged basis. The bank also outlined a specific trading strategy for its clients:
- Position: Short the Australian dollar vs. the New Zealand dollar (AUD/NZD).
- Target: 1.18
- Stop-loss: 1.24
This strategy is based on the diverging monetary policy outlooks between the two economies. UBS also noted that it expects the RBNZ to deliver its next interest rate hike in September, reinforcing the case for a stronger New Zealand dollar.