USD now shifted the focus to June – Westpac

In opinion of Richard Franulovich, Strategist at Westpac, the greenback will take centre stage in the run up to the Fed meeting in June.

Key Quotes

“Interest rate markets finally “get the message” that June is live, the market implied probability hitting 30% after the hawkish tone in the FOMC minutes from almost zero just several days ago, while the yield curve is at its flattest levels since 2007 and the Bund-Tsy 2yr spread is pushing decisively in the USD’s favour once again”. 

“Those odds should drift higher still amid a long list of Fedspeakers in the next two weeks including Chair Yellen, Deputy Chair Fischer, Dudley, Tarullo, Bullard, Williams, Harker and Kaplan. Note the Fedspeak calendar now also includes ChairYellen for 6 June, the last engagement before the Fed blackout period ahead of their 15 June meeting, lest there be any residual doubts left about the Fed’s intentions then”.

“Would not be surprised to see June hike odds rise to 45-50% before they stabilise. Upside risks to the USD should not extend much beyond May payrolls (3 June) though, striking Verizon workers and auto supply disruptions after the Kumamoto earthquake could see May payrolls print as low as 100k and it’s not clear that Chair Yellen has shed her uber-cautious stance”.