Gold Consolidates Near an All-Time High Ahead of the NFP Report
The gold (XAU) price dropped by 0.24% on Thursday after hitting an all-time high due to expectations for lower US interest rates this year.
"It looks like the Fed is quite prepared to reduce interest rates at a time when inflation is going to be significantly above their 2% target," said Bart Melek, head of commodity strategies at TD Securities.
Indeed, relatively high inflation and expectations of imminent rate cuts have given gold a substantial boost. Strong buying by central banks and safe-haven inflows amid growing geopolitical tensions have increased physical demand for gold, helping XAU/USD to rise by over 25% since October. However, some analysts believe that a downward correction is coming.
"It's heavily overbought and needs to be corrected to blow some of the froth. Fed cuts are priced in, in my view," said StoneX analyst Rhona O'Connell.
XAU/USD was falling during the Asian and early European trading sessions. Today's significant event is the US Nonfarm Payroll report, due at 12:30 p.m. UTC. The report includes crucial data, such as average hourly earnings and the unemployment rate, which may significantly affect investors' expectations regarding interest rates. While traders often concentrate on the number of jobs created in previous months, other labour market indicators are equally important. If the figures indicate that the job market remains tight, investors might reduce their expectations for an imminent rate cut in June, potentially leading to a decrease in XAU/USD. Conversely, an increase in unemployment or a smaller increase in earnings could raise the likelihood of a rate cut, potentially driving the price of gold higher. Key levels to watch are 2,265 and 2,293.
EUR Traders Await the Key NFP Report Today
The euro's (EUR) upward momentum halted on Thursday following hawkish comments from Fed officials.
Recent robust US economic data has called into question the Federal Reserve's (Fed) planned pace and extent of interest rate cuts this year. However, a slowdown in the US services sector and dovish remarks from Federal Reserve Chair Jerome Powell have underscored expectations that rate reductions could start this summer. While some Federal Reserve officials adopt a more hawkish stance on the monetary policy due to the US economy's resilience, others express a need for patience. Thus, Richmond Fed President Thomas Barkin emphasised the central bank's ability to wait for more clarity on the pace of inflation before reducing rates. Additionally, Chicago Fed President Austan Goolsbee highlighted housing price pressures as a significant concern for inflation.
Remarks from Fed members boosted the US dollar, driving it up from its 2-week low, which was reached after a disappointing US services industry report. This strength in the US dollar was reflected against various currencies in the US Dollar Index (DXY), resulting in the reversal of the bullish trend in the euro.
EUR/USD continued to fall during the Asian and early European trading sessions. Today, traders should focus on the US Nonfarm Payroll (NFP) report at 12:30 p.m. UTC. This report usually triggers increased volatility in the Forex market. If the report is strong—the average hourly earnings rise, unemployment drops, or the number of jobs created is higher than expected—EUR/USD may continue its decline, possibly dipping back below 1.08000. However, any signs that the US labour market is weakening could invigorate EUR/USD bulls, pushing the pair towards 1.09000.
Volatility in USD/CAD Will Rise Today Due to Important Reports
The Canadian dollar (CAD) lost 0.11% yesterday despite the larger-than-expected increase in US Jobless Claims.
USD/CAD has been rising since the end of December 2023, as the divergence in interest rate expectations between the Federal Reserve (Fed) and the Bank of Canada (BOC) has narrowed. Now, investors expect both central banks to follow the same path and cut their base rates around the same time. The Canadian and US economies are strongly interlinked, so they usually pursue similar monetary policies. However, the recent rally in crude oil prices might boost the Canadian dollar, preventing USD/CAD from rising above 1.36500.
USD/CAD was rising slightly during the Asian and early European trading sessions. Today, traders should focus on 2 critical reports: the Labour Force Survey (LFS) published by Statistics Canada and the Nonfarm Payroll (NFP) report at 12:30 p.m. UTC. These data releases may cause a strong reaction in USD/CAD. If the LFS figures are weaker than expected and the US reports strong results, USD/CAD could rally sharply, possibly above 1.36000. Conversely, stronger Canadian employment figures and weaker US data could bring the pair below 1.34700.