Fed expectations: a remarkable turnaround - ANZ

Analysts at ANZ explained that it has been a remarkable turnaround in Fed rate hike expectations.

Key Quotes:

"This time last week, a March hike was roughly 40% priced. It is now at 90%. Decent data has played some part in this, but ultimately the market is just reflecting what has been a relatively clear message from Fed officials and a desire for the market to perceive the meeting as “live”."

"Now the real acid test will come in around 24 hours’ time, when Yellen is due to speak in Chicago. But with it clear that there has been an active push from Fed officials (including some of the more dovish members) to sing from a similar song sheet, one would have to think that she is not about to deliver a surprise key change."

"So with March increasingly likely (barring a clanger of a payrolls report), perhaps the more important questions then are what the Fed does with its dot-plots and whether we also need to start considering prospects and timing of a potential unwind in asset purchases. Markets are handling the prospects of higher borrowing costs reasonably well, but we are certainly attuned to risks of a turn in the liquidity cycle at some stage as that would represent quite a different backdrop for currencies like the NZD."