ADP private sector payrolls rose 298k in Feb (vs 187k expected), adding upside risks to Friday’s NFP report - Westpac

According to Imre Speizer, Senior Market Strategist at Westpac, US dollar strength was again the main theme, with all the majors underperforming the USD. EUR fell from 1.0570 to 1.0535. USD/JPY surged from 113.60 to 114.75. AUD fell from 0.7600 to 0.7532 – a three-month low. NZD fell from 0.6980 to 0.6905 – a two-month low. AUD/NZD consolidated recent gains around the 1.0900 area.

Key Quotes:

Event Risk

China CPI and PPI for Feb is released today, the median estimate for CPI being 1.7% yoy.

ECB: At their March meeting, it is likely that President Draghi and the Governing Council will recognize the positive economic developments, but their focus should remain on lingering slack – best represented by soft core inflation (0.9%yr) and high levels of unemployment outside of Germany. There remains a need for continued extraordinary support of the economy.

Market Outlooks

AUD/USD 1 day:  Resumed its two-week-old decline, targeting the 0.7500 area multi-day.

AUD/USD 1-3 month: Lower to 0.7400. The Fed’s assertive tightening bias plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data for Q4 and Q1 should improve, but these forces are subservient to the US dollar’s trend. Australia’s AAA rating will remain an issue into the May budget. (23 Dec)

NZD/USD 1 day: Downward momentum remains strong, the next major downside target at 0.6860 (23 Dec low).

NZD/USD 1-3 month:  The Fed’s tightening cycle plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar, pushing NZD/USD down to 0.6900 or lower. Additional, and more recent, negative factors have been weaker dairy prices plus the RBNZ’s emphatic reminders it is on hold for a long time. (8 Mar).