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UBS Recommends NZD After Central Bank Hikes Rates to 2.50%
UBS strategists are favoring the New Zealand dollar (NZD) after the country's central bank delivered its first interest rate hike in three years, according to a research note from the bank. The firm suggests the currency is an attractive holding for investors seeking to diversify away from the U.S. dollar.
Central Bank's Hawkish Stance
The Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 25 basis points to 2.50%, a move that was widely anticipated by market participants. In its policy statement, the RBNZ signaled that further monetary tightening will likely be necessary to guide inflation back toward the 2% midpoint of its target range.
Despite the rate increase, the central bank continues to view its current policy settings as accommodative. This assessment reinforces expectations for a continued hiking cycle, with UBS forecasting the next rate increase could be delivered in September.
UBS Investment Thesis
AdIn light of the RBNZ's policy direction, UBS recommends a specific foreign exchange strategy for its clients. The bank favors a short position in the Australian dollar against the New Zealand dollar (AUD/NZD).
The key parameters for the proposed trade, as outlined in the note, are:
- Position: Short AUD/NZD
- Target: 1.18
- Stop-loss: 1.24
This position reflects a view that the RBNZ's more aggressive path on interest rates will give the New Zealand dollar an advantage over its Australian counterpart.