UBS raises AUD/NZD forecast as Australian dollar gains momentum

UBS has revised its AUD/NZD exchange rate forecast upward to 1.1400 for end-2025 and 1.1200 for end-2026, citing stronger Australian domestic data, a rally in precious metals, and a bullish Chinese yuan outlook. The bank anticipates further AUD strength from potential unwinding of real money short positions and increased hedging by Australian superannuation funds, while the NZD is expected to weaken due to poor economic data and anticipated larger RBNZ interest rate cuts.

Analysis

UBS has issued a bullish revision on the Australian dollar relative to the New Zealand dollar, raising its AUD/NZD exchange rate forecast to 1.1400 for the end of 2025 and 1.1200 for the end of 2026. The upward revision is underpinned by a confluence of positive factors for the AUD, including stronger domestic economic data, a rally in precious metals prices, and a more constructive tactical outlook for the Chinese yuan. UBS analysts highlight the potential for an accelerated appreciation driven by a technical unwinding of short AUD positions held by real money accounts, as indicated by CFTC data. Furthermore, a structural tailwind may emerge from Australian Superannuation funds increasing their foreign exchange hedge ratios back towards historical norms. Conversely, the outlook for the NZD is bearish, weakened by poor domestic economic data that has led UBS economists to anticipate larger-than-previously-expected interest rate cuts from the Reserve Bank of New Zealand. This monetary policy divergence is reinforcing the NZD's sharp decline in relative carry attractiveness, further cementing the case for AUD outperformance.

Key Decisions for Investors

• Investors may consider establishing or increasing long AUD/NZD positions to align with UBS's revised, bullish forecast and the diverging fundamental outlooks for the two economies.
• Monitor CFTC positioning data closely, as an unwinding of short AUD positions by real money accounts could serve as a significant near-term catalyst for the pair's appreciation.
• The thesis hinges on monetary policy divergence; therefore, pay close attention to upcoming RBNZ rate decisions and Australian economic data releases for confirmation of the weakening NZ and strengthening AU narrative.