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UBS Recommends Pro-NZD Trades After Central Bank Rate Hike
UBS strategists are maintaining a favorable outlook on the New Zealand dollar, citing the Reserve Bank of New Zealand's recent interest rate increase and hawkish forward guidance. In a research note, the investment bank outlined specific foreign exchange strategies for investors seeking to diversify away from the U.S. dollar.
RBNZ Delivers Expected Rate Hike
The Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 25 basis points to 2.50%, a decision that was in line with consensus market expectations. The move marked the central bank's first interest rate increase in three years.
In its accompanying statement, the RBNZ assessed current policy settings as accommodative and signaled that further tightening will likely be required. The bank's stated goal is to bring inflation back to the 2% mid-point of its target range.
UBS's FX Strategy
Based on the RBNZ's hawkish stance, UBS recommends that investors hold the New Zealand dollar on an unhedged basis. The bank also favors a short position on the Australian dollar versus the New Zealand dollar (AUD/NZD).
AdKey details of the AUD/NZD trade recommendation include:
- Target: 1.18
- Stop-loss: 1.24
Market Context
A central bank's commitment to raising interest rates typically provides support for its currency, as higher yields can attract foreign investment capital. UBS noted that it expects the RBNZ to deliver its next rate hike in September, reinforcing the potential for continued monetary policy tightening and support for the kiwi.