An upside surprise from Friday’s US payrolls report would seal the case for a 15 March rate hike - Westpac

According to Imre Speizer, Senior Market Strategist at Westpac, the US dollar, and interest rates are slightly higher, markets looking ahead to the possibility of an upside surprise from Friday’s US payrolls report, which in turn would seal the case for a 15 March rate hike.

Key Quotes:

" Interest rates: US 10yr treasury yields rose from 2.49% to 2.51%, and 2yr yields rose from 1.31% to 1.33%. Market pricing for a March hike firmed slightly, April Fed fund futures at 0.87% implying almost a 100% chance of a rate hike in March.

Currencies: The US dollar index is 0.2% higher. EUR fell from 1.0600 to 1.0558. USD/JPY rose from 113.74 to 114.15. AUD fell from 0.7633 to 0.7584. Underperformer NZD fell from 0.7018 to 0.6968 – a fresh two-month low. Contributing to its underperformance was a well-signalled (via futures) 12% fall in WMP prices at the GDT auction. AUD/NZD rose from 1.0860 to 1.0902 – a 10-month high.

Economic Wrap

GDT dairy auction: Overall prices fell 6.3%, with WMP down 12.4% and SMP down 15.5%. The declines had ben well signaled by futures markets, the WMP contracts yesterday predicting a 9% fall. Improving supply in NZ and offshore is the main explanation for the 23% fall in GDT WMP since December.

German factory orders fell 7.4% in Jan (vs -2.5% expected), in contrast to recent upbeat sentiment surveys.

The US trade balance for Jan matched expectations at -$48.5bn – a five-year low. Export growth has been challenged by the strong US dollar, while imports have rebounded in line with the stronger US economy."