Dairy prices hold; US inflation rises; Aussie deficits grow; markets awaiting Fed hike; oil steadies, gold slips; UST 10yr yield 2.27%; NZ$1 = 67.5 US¢, TWI-5 = 72.8

Here's my summary of the key events overnight that affect New Zealand, with news the latest dairy auction eked out another small gain today.

Prices were up +1.9%, with the jump in the butter price the standout at +9%, and wholemilk powder up +1.8%. The quantity offered and sold was less than 25,000 at this event.

If the rise was skinny in US dollars, it is minuscule in NZ dollars, up only +0.9% and reflecting the rising local currency. Today's rise comes after a +3.6% rise two weeks ago which snapped a series of three prior losses.

In the US, underlying inflation pressures rose in November to +2.0% pa, which will give the Federal Reserve more confidence to raise interest rates tomorrow, even as renewed weakness in petrol prices kept overall consumer prices in check.

Yesterday, Australia had its own mid year economic forecast update and that gave a glimpse of the future deficit issues the Australian Federal government faces. They are on track to spend more than NZ$22 bln a year on interest as they put off a budget surplus until early in the next decade. The grim review shows government spending growing faster than planned while tax revenues are falling short of even the forecasts made just 7 months ago. Now they face a budget deficit of NZ$40 bln this year alone, one that will grow in later years. At some point, tough choices loom, although can-kicking is still a high art in Canberra.

Despite this, the Reserve Bank of Australia is upbeat about their economy and believes signs of rising jobs growth are genuine.

All this news is interesting, but hanging over markets is tomorrow's Fed rate hike, something that seems all but certain now. It is an event that is essentially 'new', and credit markets are unsure about what the real consequences will be. Not long to wait now, however.

And we should note that a Chinese company has started building a giant solar power complex capable of generating 1.3 bln kilowatt-hours of electricity per year. That is the size of our Roxbough hydro dam. And it will reduce the production 1.2 mln metric tons of carbon dioxide emissions annually once completed. The ramping up of projects like this will have a cumulative impact.

In New York, the UST 10yr yield benchmark took another significant jump today and is now at 2.27%. Swap rates in New Zealand rose in response to yesterday's rise and will undoubtedly do so again today.

The US benchmark oil price has recorded a small rise today, now just under US$38/barrel, while the Brent benchmark is now at US$39/barrel.

But the gold price has slipped further, now at US$1,062/oz.

The New Zealand dollar is holding its higher levels, now at 67.5 US¢, at 94 AU¢ and at 61.9 euro cents. The TWI-5 is now at 72.8.

If you want to catch up with all the local changes on yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».