Gold Declines Amid Stronger US Dollar and Rising Treasury Yields
Gold (XAU/USD) declined by 0.21% on Tuesday, weighed down by a stronger US dollar (USD) and rising US Treasury bond yields.
Gold remained below $2,500 per ounce on Monday, extending its pullback from last week's record highs. However, expectations that the US Federal Reserve (Fed) will cut interest rates in September could support the precious metal. Lower rates reduce the opportunity cost of holding non-yielding assets like gold, making it more appealing to investors. According to the CME FedWatch tool, markets are now pricing in a nearly 69% chance of a 25-basis-point (bps) rate cut by the Fed in September, with a 31% chance of a 50-bps reduction.
Additionally, ongoing geopolitical tensions in the Middle East may increase demand for safe-haven assets, including the yellow metal. On Monday, protests erupted across Israel due to the government's inability to secure a ceasefire-for-hostages deal with Hamas. Overall, global political instability pushes XAU/USD higher as investors seek safety.
XAU/USD fell in the Asian trading session. Today, investors should focus on the US Manufacturing Purchasing Managers' Index (PMI) report due at 2:00 p.m. UTC. A higher-than-expected number will put downward pressure on XAU/USD, while lower-than-anticipated figures might suggest a bullish outlook for the gold.
"Spot gold may test support at $2,473 per ounce, a break below which could open the way towards $2,434", said Reuters analyst Wang Tao.
Euro Is Waiting for a Series of US Reports this Week
On Monday, the Euro (EUR/USD) rose by 0.23%, consolidating above the support level of 1.10500. This week, many US reports will determine the further movement of all US dollar (USD) related pairs.
After the previous month, Federal Reserve (Fed) Chairman Jerome Powell supported the imminent start of rate cuts in response to concerns about the weakening labour market. According to the CME FedWatch tool, markets are pricing in a 69% chance of a 25-basis-point (bps) rate cut at the next Fed meeting on 17 – 18 September, with a 31% probability of a 50-bps cut.
Brown Brothers Harriman's global head of market strategy, Win Thin, said data last week confirmed what markets already knew.
"That is, the US economic growth remains robust, driven by strong consumption, even as disinflation continues slowly but surely". He added that "We are in a Goldilocks moment right now, and so we continue to believe the Fed will start cutting rates this month in a very gradual manner".
EUR/USD decreased by 0.16% in the Asian trading session, and it seems ready to test the support level of 1.10500 again. The pair now moves sideways and awaiting a strong impulse from today's US Manufacturing Purchasing Managers' Index (PMI) report at 2:00 p.m. UTC. If the data is stronger than expected, EUR/USD may decrease towards 1.10000. Otherwise, the pair may rise towards the resistance level of 1.11000.
Australian Dollar Drops on Iron Ore Slump While the Market Awaits Australian GDP Data
The Australian dollar (AUD) gained 0.38% against the US dollar (USD) on Monday due to a technical rebound from a 10-day exponential moving average.
AUD/USD has been under bearish pressure since last Friday after the US Personal Consumption Expenditure (PCE) Price Index showed that inflation rose by 0.2% in July. The data matched the expectations, but the market treated the figures as bullish. Inflation data didn't support a case for an aggressive 50-basis-point (bps) rate by the Federal Reserve (Fed) that investors have been pricing in over the past month. As a result, the US Dollar Index (DXY) rallied sharply, while long-term Treasury yields rose to their highest since mid-August. The US Gross Domestic Product (GDP) report also indicated that the economy was strong enough to force the Fed to take a more cautious approach to policy easing.
Meanwhile, the recent Australian data has disappointed investors. The latest reports indicate that last quarter's main driver of economic growth was government spending, which added 0.4 percentage points (ppts). At the same time, net exports contributed only 0.2 ppts, falling short of the projected 0.6 ppts. This data presents some downside risks for the Australian GDP report, which will be released on Wednesday. Still, the market doesn't expect the Reserve Bank of Australia (RBA) to cut the rates in September.
AUD/USD was falling during the Asian and early European trading session as a continuing decline in iron ore prices weighed on the Aussie. In addition, the latest government statistics showed that Australia's current account deficit reached a six-year high in Q2 due to falling commodity prices and increased overseas payments for debt and dividends. Today, investors should focus on the US Manufacturing Purchasing Managers' Index (PMI) report due at 2:00 p.m. UTC. Higher-than-expected figures may extend the short-term bearish trend in AUD/USD towards 0.67000. Otherwise, the pair may rebound towards 0.67600. Another key report is Wednesday's GPD data at 1:30 a.m. UTC. The market expects a slowdown in the annual GDP growth rate towards 1%, but the report has downside risks. If the data is weaker than expected, AUD/USD may drop towards 0.66500.