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New Zealand business confidence deteriorated sharply in April, with ANZ’s headline index plunging from 32.5 to -10.6, highlighting a rapid shift in sentiment amid rising cost pressures. Firms’ own activity outlook also fell significantly from 39.3 to 19.6. One-year ahead expectations, meanwhile, jumped from 3.08% to 3.81%, the highest since February 2024.

Cost pressures have intensified again. Cost expectations rose from 84.7 to 90.4 in net terms, reaching the highest level since January 2023. On a three-month horizon, cost expectations surged from 2.99% to 4.57%, the highest since May 2023. This reflects a renewed wave of input cost pressure hitting firms, reinforcing the inflation impulse from external shocks.

Pricing behavior is firm but not accelerating as sharply. Pricing intentions edged down from 60.3 to 57.7, led by strong retail pricing at 78, while services at 51 dragged the overall measure lower. Short-term pricing expectations rose slightly from 2.37% to 2.41%, with manufacturing firms showing stronger pass-through at 3.4% compared to just 2.0% in services. This divergence suggests uneven ability to pass costs on.

Importantly, the underlying picture is not uniformly negative. ANZ noted that many activity indicators improved relative to late responses in the prior month, indicating that some of the initial confidence shock has eased. For the RBNZ, the challenge is clear: rising cost pressures and inflation expectations increase the risk of persistence, even as pricing and wage behavior remain relatively contained for now.

Full ANZ Business Confidence release here.

Gold’s selloff is accelerating as a powerful macro combination weighs on the metal. Instead of acting as a safe haven, gold is being squeezed by rising oil prices and higher bond yields. A retest of the March low is now in sight, with 4,000 emerging as the next key level. How quickly it gets there will depend on the path of oil and yields.

Oil has taken the lead. Brent is now pressing the key $120 psychological level after reports that US President Donald Trump has instructed aides to prepare for an extended blockade of Iran. At the same time, the Strait of Hormuz effectively closed to most tankers. Markets are pricing a sustained supply shock, which reinforces inflation risks globally.

The transmission into financial markets has been swift. Rising oil prices are feeding into higher inflation expectations, lifting US 10-year yields above the 4.4% level.

At the same time, the Federal Reserve’s latest decision overnight has reinforced a hawkish tilt. The Fed may have held rates, but the details mattered. The three hawkish dissenters (Hammack, Kashkari, and Logan) didn't just want to hold rates; they specifically voted against the "easing bias. For markets, the takeaway is clear: a dovish pivot is not imminent.

This creates a clear “double whammy” for Gold.

Technically, Gold’s extend decline suggests that rebound from 4,098.45 low has already completed at 4,889.24. Further fall is expected as long as 55 4H EMA (now at 4,681.60) holds, back towards 4,098.45 low, and possibly further to 4,000 psychological level.

The speed and depth of the decline will depend on developments in related markets. Brent’s behavior around the $120 level is critical. A clean break higher would likely reinforce inflation fears and push yields further up through 4.5%, accelerating Gold’s decline.

The Fed maintained its policy stance unchanged, as widely expected. Stephen Miran dissented in favour of a rate cut, while three participants dissented against maintaining an easing bias. Powell announced he continues as a Fed Governor past his term as Chair but did not specify for how long.

Powell flagged that growing number of participants are seeing current stance as neutral but did not suggest rate hikes were in the cards for now. Neither the statement nor Powell discussed the Fed's balance sheet operations.

UST yields moved higher, with markets erasing earlier bets for rate cuts this year and instead pricing in around 50% probability of a hike in H1 2027. We maintain our relatively dovish call, and still expect two cuts in Sep and Dec.

Jay Powell's final press conference as the Fed chair was as much about guidance during a difficult time for policy setting, as it was about his personal choice. Powell continues as a Fed Governor also after his term as the Chair ends 15 May, though he intentionally did not specify for how long. The decision is hawkish on the margin, as it blocks Trump from nominating a new and potentially more dovish replacement.

It also means Stephen Miran, who was the only participant voting in favour of a cut, will not continue as a Governor in June when Kevin Warsh takes his seat. Powell tied his future exit to DoJ's criminal investigation being 'well and truly over', but we also flagged in RtM USD, 28 April, that staying beyond midterms could complicate Trump's task of replacing him with a dove like Miran if Democrats manage to flip the Senate.

Three participants - Logan, Kashkari and Hammack - dissented against the Fed's current easing bias. That said, all three have been firmly in the FOMC's hawkish camp for a while, as they vocally opposed the latest rate cut already last fall. Powell specified that no one in the committee argued for a hike, and majority did not want to send a signal that a hike would be equally likely as a cut. On the other hand, Powell emphasized that the committee will not be even thinking about cutting for the next few months, as it waits to see both the effects of the energy supply shock and whether tariff-driven inflation begins to fade.

We still think the Fed will eventually resume its easing cycle with two final cuts in September and December. The war in Iran hurts the economy where we see it as already vulnerable to setbacks - in private consumption via lower disposable income, and in non-AI investments via higher interest costs. Bond yields continued to rise during the press conference, and not just because inflation expectations are following oil prices. The 10y real swap rate is even above its pre-war levels (chart 2). The bottom line is that tighter financial conditions are already weighing on the growth outlook even without explicit policy stance tightening.

Neither the statement nor Powell touched upon the Fed's balance sheet, but we expect further guidance on the T-bill Reserve Management Purchases in the minutes. Earlier guidance suggests purchase amounts will continue to decline sharply in May.

The FOMC kept the stance of policy and their outlook unchanged in April as expected, at Powell’s last meeting as FOMC Chair.

As expected, the FOMC kept the stance of policy unchanged at its April meeting and, broadly speaking, portrayed a balanced baseline and risk outlook. This is despite not explicitly stating a hike is as likely as a cut – language the dissenters Hammack, Kashkari, and Logan arguably would have preferred. This outcome is consistent with our and the market’s expectations as well as the degree of uncertainty evident in financial markets – the price of Brent crude rising circa 7% today to USD120 per barrel while US equities held near record highs.

The Committee’s take on economic activity was sanguine, with GDP characterised as “expanding at a solid pace” and the unemployment rate “little changed in recent months” even as job gains “remained low”. Members’ views on the price outlook showed caution but not overt concern, with inflation simply characterised as "elevated". "The Committee is [also] attentive to the risks to both sides of its dual mandate", and Chair Powell noted in the press conference that, in his view, policy is in a good place to take time to monitor conditions, being at the "high end of neutral”, “perhaps mildly restrictive".

We have been more concerned than the FOMC over domestic inflation stemming from capacity constraints and, in such an economic state, believe outsized and/or persistent second-round effects of energy and tariff inflation are meaningful risks. Still, with growth below trend in Q4 2025 and Q1 2026, and likely through mid-2027, there is no urgency to take a hawkish stance, let alone hike. Per Chair Powell’s remarks and current market pricing, the best course is to hold and continue assessing current conditions and uncertainties.

Like all other major central banks, the road ahead for the Federal Reserve is challenging. The domestic and international risks the economy and Committee face are disparate and could persist for some time. The FOMC will also have to navigate considerable US fiscal uncertainty over the year(s) ahead. A continued uptrend in the US 10-year yield, and consequently the 30-year mortgage rate, will limit the breadth of growth across the economy and weigh on household and financial market confidence. In time, it will also restrict the Government’s capacity to act against a meaningful deterioration in economic momentum as the interest burden grows. As such, we cannot discount policy rate cuts entirely, though they are more likely to be a topic of conversation in 2027 or 2028 than 2026.

Finally, with Kevin Warsh's nomination for FOMC Chair advancing from the Committee stage to a full vote in the Senate, it is important to recognise this meeting was Powell’s last meeting as Chair. In the press conference though, Powell made clear he still intends to stay on as a Federal Reserve Governor, and consequently a member of the FOMC, until the investigations into the Federal Reserve are “well and truly over with finality and transparency”. The Department of Justice dropping their criminal investigation into the organisation and Chair Powell are a decisive step in that direction, but the Supreme Court decision in Lisa Cook’s case is still to come, and the Federal Reserve’s own investigation into construction costs has to be completed to rule out the Department of Justice re-opening its investigation. Powell remaining in place as a Governor over the period will provide continuity while these uncertainties are resolved.

The Federal Open Market Committee (FOMC) held the policy rate steady at the target range of 3.5%-3.75% for a third consecutive meeting.

There were only a few minor changes to the policy statement. While the Committee still views economic activity as expanding at a solid pace, it was noted that the "developments in the Middle East are contributing to a high level of uncertainty about the economic outlook".

The wording on inflation was also tweaked, with the Committee now seeing it as "elevated" as opposed to "somewhat elevated". There was also a nod to the fact that higher energy prices are already leading to higher inflation.

Eleven of the twelve FOMC members voted in favor of today's decision, though three of those participants voted against maintaining an easing bias in the statement. Only Stephen Miran dissented in favor of a 25-bps cut.

Key Implications

With the economic outlook largely unchanged since the last FOMC meeting and energy prices still elevated amid unresolved issues to reopen the Strait of Hormuz, the Fed opted to maintain the status quo, holding the fed funds rate steady and only making minor changes to its policy statement. But the overall sentiment leaned slightly hawkish, with several participants voting against maintaining the current easing bias in the statement.

Today marks the end of an era for Jerome Powell, with this afternoon's press conference likely his last as Fed chair. If all goes as planned, Kevin Warsh will be in-seat for the next interest rate decision on June 16-17, though it remains unclear whether Powell will serve out the remaining two-years of his term on the board of governors. Either way, it seems very unlikely that a Warsh Fed will quickly pivot to lowering interest rates. Decisions are made by a majority vote, and it's becoming clear that many participants are reluctant to take rates any lower amid a resilient economy and still elevated inflationary pressures. We see the Fed staying on hold through at least the summer, with the potential for more rate cuts later this year should inflation show more compelling evidence of moving back towards the Fed's 2% target.

Federal Reserve left its policy rate unchanged at 3.50–3.75%, in line with expectations, but the decision revealed a widening divide within the Committee. Governor Stephen Miran again dissented in favor of a 25bps cut, while Beth Hammack, Neel Kashkari, and Lorie Logan opposed the inclusion of an easing bias in the statement, signaling resistance to any premature shift toward rate cuts.

The statement itself struck a balanced tone. Economic activity was described as expanding at a "solid pace", while labor market conditions remain stable but without strong job gains. Inflation was acknowledged as "elevated", partly due to rising global energy prices.

The policy split suggests the Fed is far from a consensus on the next move. While one camp is leaning toward easing in response to cooling growth and labor dynamics, another is pushing back against signaling cuts while inflation remains above target.

For markets, the message leans toward a cautious hold rather than a clear directional shift. The absence of a unified easing signal, combined with resistance from several officials, suggests that rate cuts are not imminent. Instead, policy is likely to remain data-dependent, with the Fed waiting for clearer evidence on whether energy-driven inflation will prove temporary or more persistent.

Full FOMC statement here.

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, on average, and the unemployment rate has been little changed in recent months. Inflation is elevated, in part reflecting the recent increase in global energy prices.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Philip N. Jefferson; Anna Paulson; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting; and Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time.

USDJPY: ⬆️ Buy

• USDJPY from the support zone
• Likely to test resistance levels 160.40 and 161.00

USDJPY currency pair recently reversed from the support zone between the key support level 157.50 (which stopped the previous correction iv) and the lower daily Bollinger Band.

The upward reversal from this support zone created the daily Hammer, which started the earlier short-term impulse wave iii.

Given the strong daily uptrend and the bullish US dollar sentiment seen today, USDJPY currency pair can be expected to rise to the next resistance levels 160.40 and 161.00.

AUDUSD: ⬇️ Sell

• AUDUSD reversed from key resistance level 0.7190
• Likely to fall to support level 0.7100

AUDUSD currency pair recently reversed from the resistance zone between the key resistance level 0.7190 (which has been reversing the price from March) and the upper daily Bollinger Band.

The downward reversal from the key resistance level 0.7190 stopped the earlier short-term impulse wave 3 – which belongs to wave (C) from November.

Given the strength of the resistance level 0.7190 and the overbought daily Stochastic, AUDUSD currency pair can be expected to fall to the next support level 0.7100 (low of the previous wave ii).