UBS has updated its forecast for the New Zealand dollar (NZD), anticipating underperformance against its G10 peers, including the US dollar.
This revision follows an earlier May 30 warning about the pair skating on thin ice due to a discrepancy between net-long positioning and growth prospects. UBS had subsequently lowered their NZDUSD forecast and suggested a long position at 1.08, with a target of 1.15 over twelve months.
UBS acknowledged that the Reserve Bank of New Zealand (RBNZ) made a smooth change of course earlier than expected. The company’s recent visit to New Zealand reinforced their view that the country’s economic activity had slowed, with tight monetary policy having a significant impact on domestic demand.
This perspective was supported by today’s observations from the RBNZ, which cited surveys of businesses and consumers, along with spending and credit data indicating a decline in activity.
The consumer price indices (CPI) for the second quarter, to be published on July 17, are crucial. UBS expects a lower CPI than the RBNZ forecast, with a quarterly increase of 0.5% and an annual increase of 3.4%, compared to the central bank’s estimates of 0.6% and 3.6% respectively.
Notably, the RBNZ has not historically required the CPI to be within the target range in order to initiate an easing cycle. The RBNZ has now softened its outlook, suggesting a return to the CPI target in the second half of this year, in contrast to its previous statement in May that indicated the end of 2024.
On the cash rate front, UBS now expects the RBNZ to make the first cut of 25 basis points in August, up from their initial forecast in November. The forecast final interest rate is 3.25% in the fourth quarter of 2025, down from the current 5.5%.
On investment grounds, UBS continues to believe that the NZD is likely to underperform most G10 currencies over the next twelve months. They also see AUDNZD rising to around 1.15 over the same period and suggest adding positions at the current level of 1.10.
Technical indicators for the NZD are showing signs of weakness, with the Relative Strength Index (RSI) falling and the spot rate falling sharply below the 50-day moving average, while momentum remains neutral. UBS notes that a potential risk to their forecast is an unexpected increase in the second quarter CPI data.
This article was produced with the support of AI and reviewed by an editor. For more information see our General Terms and Conditions.
