UBS Reaffirms Favorable View on New Zealand Dollar After RBNZ Rate Hike

UBS continues to favor the New Zealand dollar (NZD) in its global currency strategy, according to a recent research note. The bank's positive stance was reiterated after the Reserve Bank of New Zealand (RBNZ) raised its key interest rate for the first time in three years.

RBNZ Delivers Expected Rate Hike

The Reserve Bank of New Zealand increased its official cash rate by 25 basis points to 2.50%, a move that was widely anticipated by market consensus. In its policy statement, the central bank signaled that further monetary tightening will likely be necessary to achieve its goal of returning inflation to the 2% midpoint of its target range.

The RBNZ noted that current policy settings are still considered accommodative. Following this guidance, UBS analysts stated they expect the next rate hike to occur in September.

UBS Investment Thesis

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In light of the RBNZ's hawkish policy direction, UBS recommends the New Zealand dollar for investors seeking to diversify their holdings away from the U.S. dollar. The bank advises holding the NZD on an unhedged basis.

For a specific currency trade, UBS highlighted its preference for a short position on the Australian dollar versus the New Zealand dollar (AUD/NZD). The firm's key targets for this position are:

• Target: 1.18
• Stop-loss: 1.24