UBS Recommends New Zealand Dollar After RBNZ Rate Hike

UBS maintains a positive outlook on the New Zealand dollar, recommending the currency for investors seeking to diversify away from U.S. dollar exposure following a recent interest rate hike by the nation's central bank.

RBNZ Hikes Rates, Signals More to Come

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 market consensus. The decision marked the central bank's first interest rate increase in three years.

The RBNZ stated that it continues to view current policy settings as accommodative. It also signaled that further monetary tightening will likely be required to bring inflation back toward the 2% midpoint of its target range, according to its policy statement.

UBS's Investment Thesis

In a research note, UBS cited the RBNZ's hawkish stance as a key driver for its favorable view on the currency, often called the kiwi. The investment bank anticipates the next rate hike could be delivered as soon as September.

Ad

For investors, UBS suggests holding the New Zealand dollar on an unhedged basis as a way to diversify holdings away from the U.S. dollar.

Specific Trade Recommendation

For currency traders, UBS stated it favors a short position on the Australian dollar versus the New Zealand dollar (AUD/NZD). The bank's specific guidance on the trade includes:

• Target: A price level of 1.18 for the AUD/NZD pair.
• Stop-loss: An exit point of 1.24 to limit potential losses.