Gold Declines as US Consumer Confidence Report Surprises the Market
Yesterday, the gold (XAU) price fell by 0.64% due to a stronger-than-expected US Conference Board (CB) Consumer Confidence report.
The CB survey revealed that the decline in the Consumer Confidence Index was smaller than expected. The index fell from 101.3 in May towards 100.4 in June, reflecting concerns about the US economic outlook. This data, combined with recent weaknesses in US Retail Sales numbers and indications of moderating inflationary pressures, supports hopes for a rate cut by the Federal Reserve (Fed) in September and puts bearish pressure on the US dollar (USD). However, overnight hawkish remarks from Fed officials suggested that the US central bank is unlikely to begin its rate-cutting cycle anytime soon.
The risk of escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict provides some support to safe-haven assets, such as gold, limiting its losses. Traders might also prefer to wait for key US macroeconomic data, including the final Q1 Gross Domestic Product (GDP) figures on Thursday and the Personal Consumption Expenditures (PCE) Price Index on Friday. These reports could influence the Fed's monetary policy decisions and give momentum to XAU/USD.
XAU/USD touched its lowest level in over a week during the Asian session. Today, the formal macroeconomic calendar is uneventful, so volatility may remain low throughout the day. Still, the US New Home Sales report, due at 2:00 p.m. UTC, may add some volatility to the market in the American trading session.
"Spot gold may fall into a range of $2,286–$2,299 per ounce, following its repeated failures to break a falling trendline", said Reuters analyst Wang Tao.
Euro Slips on Hawkish Fed Stance
The euro (EUR) lost 0.18% on Tuesday as the US Dollar Index (DXY) started to rise again after US Conference Board (CB) said that consumer confidence remained strong, while Federal Reserve (Fed) officials delivered hawkish remarks.
Although the CB Consumer Confidence Index slightly eased in June, households remained optimistic about the labour market and expected inflation to subside over the next year.
"The mild decrease in confidence isn't consequential, and we think there are sufficient tailwinds to keep consumers spending. The economy is on a glide path to normalised conditions", said Oren Klachkin, financial market economist at Nationwide.
However, the main bullish impulse for the US dollar (USD) was provided by yesterday's comments from Fed officials. Michelle Bowman, a Board of Governors member, said that keeping interest rates unchanged 'for a while' could curb inflation. She also reaffirmed her commitment to raising borrowing costs if necessary. Meanwhile, the situation in the eurozone remains uncertain as French elections approach, while investors continue to expect the European Central Bank (ECB) to be slightly more dovish than the Fed.
EUR/USD was falling during the Asian and early European trading sessions. German GfK Consumer Confidence data revealed a drop in sentiment as households remained uncertain due to higher prices.
"The interruption of the recent upward trend in consumer sentiment shows that the road out of the sluggish consumption will be difficult, and there can always be setbacks", said NIM consumer analyst Rolf Buerkl.
The formal macroeconomic calendar is relatively light today, but the US New Homes Sales data at 2:00 p.m. UTC may trigger sharp moves in EUR/USD. Higher-than-expected figures will likely push the pair below 1.06600. Conversely, weaker-than-expected results may pull EUR/USD up towards 1.07400.
The Australian Dollar Soars on Hot Inflation Report
The Australian dollar (AUD) lost 0.17% during a relatively quiet session on Tuesday as traders prepared for the release of the Australian inflation report.
AUD/USD rose sharply during the early Asian trading session after the Australian Bureau of Statistics released higher-than-expected Consumer Price Index (CPI) figures. The surprisingly strong CPI report caught traders off-guard. The numbers showed that annual inflation accelerated to a six-month high, with core indicator rising for the fourth consecutive month. The market immediately adjusted its interest rate expectations, which pushed AUD/USD higher. Currently, interest rate swap market data implies a 45% chance of a 25-basis-point rate hike from the Reserve Bank of Australia (RBA) by September. Before the inflation report was released, the probability of that scenario was only 12%.
"Australia could be one of the very few developed markets to raise rates. Forget higher for longer—we may end up being the highest for the longest', said Russel Chesler, VanEck Head of Investments & Capital Markets.
The RBA has repeatedly warned that inflation risks were present and that monetary policy easing was a long way off. Therefore, the central bank has held its interest rates steady at a 12-year high of 4.35% for five straight monetary policy meetings. With inflation exceeding the 2–3% target, the RBA may have to hike the rate as early as August.
AUD/USD continued to rise during the early European trading session. The pair is approaching strong resistance in the 0.67000 area, so some short-term consolidation is likely. However, US New Home Sales data will come out at 2:00 p.m. UTC today and may stoke additional volatility. If the figures are lower than expected, AUD/USD may break above 0.67000 and move higher. Conversely, a stronger-than-expected report may trigger a minor correction, possibly towards 0.66700.