RBNZ less dovish, Aussie jobs upside surprise

If one thing has been consistent in the post-crisis era, it's that the market throws a tantrum every time the Fed hints at getting less dovish and that could be what's driving the squeeze on the US dollar. Risk aversion was the theme Wednesday as the yen led the way and the loonie lagged on oil weakness. The Kiwi rose aross the board after the RBNZ sounded off a confusingly hawkish statement. Aussie jobs surprised with 43K net increase, three times greater than expected, but downward revisions, unemployment rising to 6.3% and part-time workers filling 80% of the rise were seen as neutralizing factors. Two new trades in the Premium Insights involving NZD were issued, after the earlier trades were stopped out.

The RBNZ made references to the Kiwi being overvalued despite reiterating the outlook for further tightening down the line. After the  Kiwi rallied hard, RBNZ governor Wheeler said he expected rates to remain where they were for a long  time.

There are fresh worries about Chinese economic weakness and the regular fretting about Greece butthere hasn't been much news that would justify the sudden softness in the US dollar unless we take a look at the Fed.

There's a very good chance the FOMC removes the commitment to 'considerable time' at next week's meeting in what will be taken as a signal about rate hikes in six months. The market – especially the bond market – is saying it's a mistake.

Five-year breakevens fell another 5 bps on Wednesday and now imply average inflation of just 1.27% over that period. By June, some economists are forecasting US inflation will be at 0.0% year-over-year. The market is warning the Fed that it doesn't need to raise rates; the big surprise on Dec 17 might be that the Fed listens.

The conundrum is that the Fed might only listen if the market kicks and screams some more.