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Australia NAB Quarterly Business Confidence dropped from -1 to -4 in Q1. Current Business Conditions fell from 20 to 16. Business Conditions for the next three months decreased from 22 to 19. But Business Conditions for the next 12 months rose from 18 to 20.

"Consistent with our monthly business survey, today's release confirms business conditions remained resilient through the first quarter of 2023 at levels well above average," said NAB Chief Economist Alan Oster. "This strength remains broad based and leading indicators are also holding up, although business confidence is now clearly negative."

Full NAB Quarterly Business Confidence release here.

In Q1, New Zealand CPI growth slowed down from prior quarter's 7.2% yoy, registering a 6.7% yoy increase, falling short of the expected 7.0% yoy. The largest contributor to the annual inflation rate was the food sector, followed by housing and household utilities.

On a quarterly basis, CPI rose by 1.2% qoq in Q1, below the anticipated 1.5% qoq increase, marking the lowest result in two years. Vegetables and fruit were the primary drivers of food prices, rising by 8.6% and 11%, respectively.

These figures came in lower than RBNZ's forecast of a 1.8% qoq and 7.3% yoy inflation. Despite the slowdown in inflation, another 25bps rate hike is still anticipated in May due to the persistently high inflation levels. However, it appears increasingly likely that the upcoming rate hike will be the last in the current cycle.

Full New Zealand CPI release here.

New York Fed President John Williams emphasized the need to utilize monetary policy tools to achieve price stability during a speech at the Money Marketeers of New York University. He expressed confidence in attaining a sufficiently restrictive stance to bring inflation down to Fed's 2% longer-run goal

Williams noted that "the most recent data indicate that this trend of slowing inflation is continuing." He expects PCE core inflation to ease to 3.25% this year and reaching the 2% target within the next two years. He also commented on the labor market, calling it "very tight" but showing some signs of cooling. Williams expects the unemployment rate to rise to between 4% and 4.5% over the next year, with growth moderating this year before rebounding next year.

Additionally, Williams addressed the recent major bank collapse in the US, stating that the banking system remains sound and resilient. However, he anticipates that the collapse will result in tighter credit conditions for households and businesses, which could impact spending. Williams highlighted the importance of closely monitoring credit conditions and their potential effects on the economy.

Chicago Fed President Austan Goolsbee discussed the upcoming May FOMC meeting, the strength of the job market, and persistent inflation in an interview. Goolsbee cautioned against reading too much into his stance on interest rates, stating, "We still got a couple of weeks before the actual meeting, so if anybody imputed some specific basis points of what I was for, that'd be inaccurate."

Goolsbee acknowledged the strong job market as the most robust part of the economy, with "unprecedented numbers," while noting that inflation remains a concern. He said, "Inflation — there's been some improvement, but in a way that's the worst part of the economy," adding that it has been "more persistent than we wanted."

As for the potential impact of the recent failure of two US banks on the economy, Goolsbee said it is essential to monitor the extent of the slowdown. He explained, "How much squeezing is going to be coming from the bank side I think is going to matter for whether this economy is going to slow down." Goolsbee emphasized that the intensity of the anticipated growth slowdown in the second half of the year would depend significantly on the financial sector.

European Central Bank (ECB) Executive Board member Isabel Schnabel emphasized the importance of a data-driven approach to policy decisions in light of recent disturbances in the banking sector. She stated yesterday, "I can't tell you what we'll decide at the next meeting, and especially at the following meetings," adding that the situation has become "even more complex."

Schnabel noted the significance of monitoring the potential impact of banking sector uncertainty on lending, saying, "It's even more important that we look at all the data we'll get. It's important whether the uncertainty in the banking sector will have an additional impact on lending."

When discussing the ECB's future plans for its balance sheet, Schnabel admitted that the endpoint remains uncertain and is currently under discussion. She emphasized the need to manage the balance sheet in a way that markets can digest during these turbulent times and expressed satisfaction with the current approach, stating, "So far, it's worked extraordinarily well."

Key Highlights

• Bitcoin price started a downside correction below $30,000.
• BTC is still above a key bullish trend line with support at $28,900 on the 4-hour chart.
• EUR/USD could attempt a fresh increase above 1.1000.
• The US Initial Jobless Claims could rise from 239K to 240K.

Bitcoin Price Technical Analysis

Bitcoin price struggled to clear the $31,000 resistance zone. BTC/USD started a downside correction below the $30,500 and $30,200 support levels.

Looking at the 4-hour chart, the price gained pace after it broke the $30,000 pivot level. It dipped below the 50% Fib retracement level of the upward move from the $27,216 swing low to the $31,015 high.

The price is now near a key bullish trend line with support at $28,900 on the 4-hour chart. The main support sits near the $28,800 level and the 100 simple moving average (red, 4 hours).

The 61.8% Fib retracement level of the upward move from the $27,216 swing low to the $31,015 high is also near $28,680. If there is a downside break and a close below $28,680, bitcoin might start another decline in the coming days toward the 200 simple moving average (green, 4 hours).

On the upside, the price is facing resistance near the $30,000 level. The first major resistance is near the $30,450 level (a multi-touch zone).

A successful close above the $30,450 level might spark another bullish wave. In the stated case, the price may perhaps rise toward the $31,220 level.

Any more gains could set the pace for a larger increase to $32,000.

Economic Releases

• US Initial Jobless Claims - Forecast 240K, versus 239K previous.
• US Existing Home Sales for March 2023 (MoM) - Forecast +1.5%, versus +14.5% previous.

Consumer prices rose 1.2% in the March quarter and are up 6.7% over the past year. The March result was below our forecast, and much lower than the RBNZ's expectation.

Consumers Price Index, March quarter 2023

Quarterly change: +1.2% (prev: +1.4%)

• Westpac: +1.5%, RBNZ (February MPS): +1.8%
• Median market f/c: +1.5%, range +1.3% to +1.8%

Annual change: +6.7% (prev: +7.2%)

• Westpac: +6.9%, RBNZ: +7.3%, Market f/c: +6.9%

Key points

New Zealand consumer prices rose 1.2% in the March quarter, with prices up 6.7% over the past 12 months.

Today's result was lower than market expectations, and well below the RBNZ's forecast for a 1.8% rise.

Annual inflation remains painfully high. However, inflation looks like it has now peaked.

Core inflation, while still high, is not pushing higher.

Today's result supports our forecast for just one more OCR hike from the RBNZ in May.

Details

The March quarter saw large price swings in some specific areas:

• Food prices rose by 3.7% over the March quarter and are up a massive 11% over the past year. In part, that strength was due to disruptions stemming from January's storms and Cyclone Gabrielle, which resulted in significant damage to some crops. There have also been large increases in the prices of items like groceries (including eggs).
• March quarter inflation was also boosted by the annual increase in the tobacco excise tax, with cigarettes and tobacco prices up 7.6%.
• Providing some offset to those increases has been the fall in petrol prices, with prices at the pump dropping by around 2.6% in recent months.

But while there were some large swings in some specific prices, the big takeout for the BNZ was core inflation. The various measure of core inflation (which smooth through the quarter-to-quarter swings in prices and track the underlying trend in inflation) remain high at around 6%. Crucially, however, they are not continuing to push higher.

This is an important development for the RBNZ. Interest rates have been on the rise for over 18 months. Although price pressures still remain very strong, we're now seeing signs that the rise in prices is starting to lose some steam.

Digging under the surface, the March quarter saw softness in the prices of a range of imported durable items like furnishings. That's consistent with anecdotes from retailers of softening demand.

Looking across the broad product groups, domestic (or non-tradable) prices were up 1.7% in the March quarter and have risen by 6.8% over the past year. That's still very strong, but lower than the RBNZ had expected.

Prices for imported goods (sometimes referred to as tradables) rose by 0.7% over the past three months and are up 6.4% over the past year. That's a big step down from the rates we saw earlier in the year.

What does today's result mean for the RBNZ?

We're forecasting another 25bp increase in the Official Cash Rate at the RBNZ's May policy meeting. Inflation is still running red-hot and it remains well outside the central bank's target range.

However, it's looking increasingly likely that May will be the last rate hike in the current cycle. Inflation has fallen well short of the RBNZ's forecasts for a second quarter, and there are signs that underlying inflation pressures have peaked and may be starting to ease. Those developments come on top of softening demand in sectors such as construction. Together these are important indications that the policy tightening over the past 18 months is at last having the intended dampening effect.

More details to follow in our Bulletin later today.

Attention will turn to New Zealand's Q1 in the upcoming session. Consensus expectations suggest that CPI will slow from Q4's 7.2% yoy, with the majority of forecasts range from 6.9% to 7.1% yoy. Realizing such figures would present a downside surprise for RBNZ, which had projected a Q1 inflation rate of 7.3% yoy. With further slowing expected in subsequent quarters, the case for the RBNZ to pause at a terminate rate of 5.50% rate after another 25bps hike in May would strengthen if inflation indeed begins to cool.

From a technical perspective, NZD/USD's decline from its February high of 0.6537 is viewed as a correction to the uptrend originating from the 2022 low of 0.5511. The corrective structure of the bounce from 0.6083 to 0.6381 suggests the decline isn't over yet. As long as the 0.6313 resistance holds, a deeper fall remains favored.

However, it's worth noting that downside momentum has been relatively weak thus far. Consequently, even if the rate dips below 0.6083, strong support could emerge around 50% retracement of 0.5511 to 0.6537 at 0.6024, potentially completing the correction and forming a base.

• New Zealand’s inflation estimate for Q1 stands at 7.1%
• Fed’s Bostic expects one more rate hike
• NZD/USD showing limited movement

New Zealand inflation expected to remain above 7%

New Zealand releases inflation for the first quarter later today. It has been a light data week so far in both New Zealand and the US, which explains why NZD/USD is almost unchanged this week. That could change in a hurry following the inflation report, which should be treated as a market-mover.

Inflation has barely budged over the past few months, despite relentless interest rate hikes from the central bank. CPI came in at 7.2% y/y in both the third and fourth quarters of 2022 and is projected to inch lower to 7.1% in Q1. Reserve Bank of New Zealand Governor Orr can’t be blamed for not being aggressive against inflation, as he has raised rates to 5.25% in the current rate-hike cycle, the highest level amongst the major central banks.

The RBNZ shocked the markets earlier this month when it delivered a 50-basis point hike, as the markets had expected a modest 25-bp move, given a lackluster New Zealand economy. The oversize rate hike isn’t expected to have much impact on the upcoming inflation release. Economists will explain that it takes time for the rate hikes to percolate through the economy, but that is cold comfort for households who are struggling with rising mortgage payments but not seeing any improvement in red-hot inflation. The fight to contain inflation has been slow to show results and RBNZ policy makers will be hoping for a lower reading than the 7.1% consensus estimate.

In the US, the Fed is widely expected to raise rates next month, with an 84% probability according to the CME Group. On Tuesday, Fed member Bostic said that he expects one more rate hike in May and then a hold policy all the way into 2024. The markets are more dovish and anticipate rate cuts before the end of this year due to the economy continuing to weaken as the rate hikes make themselves felt and dampen economic activity.

NZD/USD Technical

• NZD/USD is testing support at 0.6213. Below, there is support at 0.6127
• 0.6289 and 0.6368 are the next resistance lines