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James Hyerczyk
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AUD/USD

The New Zealand Dollar is trading higher early Wednesday, edging closer to its April 13, 2018 top at .7395 after the Reserve Bank of New Zealand (RBNZ) held its official cash rate at a record low of 0.25%, as expected, saying the current levels of monetary stimulus were needed to meet its consumer price inflation and employment remit.

At 04:39 GMT, the NZD/USD is trading .7363, up 0.0019 or +0.26%.

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The RBNZ also retained its large scale asset purchase (LSAP) program at NZ$100 billion ($73.24 billion). The Funding for Lending Program (FLP) operation was unchanged.

Economists in a Reuters poll had unanimously expected the RBNZ to hold rates.

RBNZ Calls for ‘Considerable Time and Patience’

“The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained at the 2% per annum target midpoint, and that employment is at or above its maximum sustainable level,” it said in the statement.

Meeting these requirements will necessitate considerable time and patience, it added.

RBNZ policymakers said in their Monetary Policy Statement that the recent resilience in the domestic economy implies that no significant additional stimulus is required at this time.

While the RBNZ sounded a cautious note about the outlook, analysts expect improving conditions to add to the case for reduced stimulus.

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RBNZ Says Economic Outlook Remains ‘High Uncertain’

Despite improved economic data, the RBNZ, which is one of the most dovish central banks, remained cautious saying the economic outlook ahead remains “highly uncertain”.

“This ongoing uncertainty is expected to constrain business investment and household spending growth,” it said, adding that inflation and employment would likely remain below its remit targets over the medium term in the absence of prolonged monetary stimulus.

The RBNZ also revised its forecasts for growth, employment and inflation, all of which have returned better-than-expected results since the last policy meeting in November.

Short-Term Outlook

“The Reserve Bank of New Zealand sounded dovish when it left policy settings unchanged today, but we still expect the Bank to begin increasing rates next year,” Ben Udy, Australia & New Zealand Economist at Capital Economics, said.

“While the Bank stressed its willingness to provide further stimulus and its ability to implement negative rates, the Bank’s forecasts now show less stimulus is likely to be needed.”

The New Zealand Dollar initially dipped on the RBNZ announcement, but quickly turned higher as traders reacted to a weaker U.S. Dollar, lower U.S. Treasury yields and firm demand for riskier assets. These moves were supported by comments from Federal Reserve Chair Jerome Powell who downplayed concerns over inflation during a testimony before the U.S. Congressional Banking Committee.

For a look at all of today’s economic events, check out our economic calendar.

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