UBS has updated its forecast for the New Zealand dollar (NZD), predicting that it will underperform compared to other G10 currencies, including the US dollar.
This revision comes after a previous warning issued on May 30, where UBS raised concerns about the NZDUSD pair due to a mismatch between net-long positioning and the growth outlook. As a result, UBS lowered their NZDUSD forecast and recommended a long position at 1.08, with a target of 1.15 over 12 months.
UBS noted that the Reserve Bank of New Zealand (RBNZ) made a dovish pivot sooner than expected. Their recent visit to New Zealand confirmed that the country’s economic activity had slowed, with tight monetary policy significantly impacting domestic demand.
The RBNZ’s recent observations highlighted a decline in business and consumer surveys, spending, and credit data, indicating a decrease in economic activity.
The upcoming release of the second-quarter Consumer Price Index (CPI) data on July 17 is crucial. UBS projects a lower CPI than the RBNZ’s forecast, with a quarterly increase of 0.5% and a yearly rise of 3.4%, compared to the central bank’s estimates of 0.6% and 3.6%, respectively.
UBS expects the RBNZ to implement a 25 basis points cut in the cash rate in August, moving up from their initial prediction of November. The forecasted terminal rate is 3.25% by the fourth quarter of 2025, down from the current 5.5%.
For investment considerations, UBS believes that the NZD will likely underperform most G10 currencies in the next 12 months. They also anticipate the AUDNZD to rise 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) declining and the spot rate falling below the 50-day moving average. UBS highlights that an unexpected increase in the second-quarter CPI data could pose a risk to their forecast.