Gold Traders Await US Labour Market Data
Gold (XAU/USD) dropped below $2,490 on Tuesday following the US Manufacturing Purchasing Managers' Index (PMI) report but recovered by the end of the day.
PMI data revealed that US manufacturing activity declined more than anticipated in August. Weaker numbers underscore the sector's fragility and raise doubts about the US economy's ability to withstand higher borrowing costs. At the same time, an unexpectedly sharp increase in prices for producer goods questioned hopes for a dovish shift. Still, according to the CME Group's (NASDAQ:CME) FedWatch Tool, traders now price in a 41% probability of a more aggressive 50-basis-point rate cut, up from 31% before the US ISM Manufacturing PMI report release.
"We see evidence that speculative positioning in gold is effectively maxed out for the time being. I think the level to which gold is seeing pressure from the rise in the dollar reflects our view on positioning", noted Daniel Ghali, commodity strategist at TD Securities.
Gold has surged by 21% year-to-date, reaching a record high of $2,531.79 on 20 August, fueled by expectations of US rate cuts and heightened geopolitical tensions in the Middle East.
XAU/USD rose slightly during the Asian trading session. Today, the US JOLTS Job Openings report will be released at 2:00 p.m. UTC. Investors also eagerly await Friday's US nonfarm payroll (NFP) data for August, which could influence the size of the Federal Reserve's potential rate cut at its September policy meeting. Weaker-than-expected labour market data could heighten recession fears and accelerate expectations of faster rate cuts. This can support gold prices as lower rates decrease the opportunity cost of holding non-yielding assets like gold.
Euro Moves Sideways Ahead of the NFP Report
EUR/USD fell by 0.27% on Tuesday, settling at 1.10500. The price has been moving sideways throughout the week, waiting for a breakout from the 1.10300–1.10700 range. The price dynamic remains weak ahead of important US data releases this week.
The August US Manufacturing Purchasing Managers' Index (PMI) was below market expectations, with 47.2 points instead of the expected 47.5. This development increased concerns about the possibility of a US recession, although it may not have significantly impacted EUR/USD. There were no major developments in the European market during the first half of the week. However, eurozone Retail Sales data for July will come out on Thursday and may outline the EUR/USD trend.
Also, the release of the US nonfarm payroll (NFP) data on Friday will provide crucial information about the upcoming Federal Reserve's (Fed) interest rate decision on 18 September. The NFP is expected to give more clues into the depth of rate reduction. The data may determine whether the rate cut will be 25 basis points (bps) or 50 bps. Lower US interest rates could lead to a similar move by the European Central Bank (ECB) at the next monetary policy meeting.
EUR/USD continues to move sideways and may retest the upper range border at 1.10700. Today, the US Job Openings report at 2:00 p.m. UTC may affect the pair's movements. Higher-than-expected numbers will strengthen the US dollar and put bearish pressure on EUR/USD. Meanwhile, lower-than-expected figures may push the pair higher.
Canadian Dollar Rises as Traders Await BOC Rate Decision and Critical US Data
On Tuesday, the Canadian dollar (USD/CAD) lost 0.44% against the US dollar (USD) as traders continued to reposition ahead of the critical US labour market reports over the next three days.
The greenback continued to recover from its recent multi-month lows as traders braced for a data-heavy week, including Friday's US nonfarm payroll (NFP) report. The labour market data could outline the path of interest rate cuts from the Federal Reserve (Fed). Yesterday, USD received additional support from the Institute for Supply Management (ISM) survey, which showed that manufacturers continued to pay higher prices for inputs in July. However, traders are more concerned about the upcoming ISM services report and the NFP data.
"Any significant moves on the back of the manufacturing survey are likely to be relatively limited in nature, ahead of the wider services gauge being released on Thursday, and, of course, with all eyes remaining on Friday's key jobs report, as the main determinant of whether the FOMC will plump for a 25-basis-points, or a 50-basis-points, cut at the September meeting", said Michael Brown, senior research strategist at Pepperstone.
Despite a recent rise in the US Dollar Index (DXY), the market continues to expect the Fed to pursue more dovish monetary policy in the months ahead. The latest interest rates swap market data implies roughly 130 basis points (bps) worth of rate cuts by the US central bank by the end of January 2025. Meanwhile, CAD traders may have also decided to exit their short USD/CAD positions ahead of the Bank of Canada (BOC) interest rate decision today at 1:45 p.m. UTC. Additionally, CAD was under bearish pressure as crude oil prices dropped sharply due to expectations that OPEC may increase its output in October.
USD/CAD was declining slightly during the Asian and early European trading sessions. Today, traders should prepare for increased volatility. The major event is the BOC rate decision, due at 1:45 p.m. UTC, and the press conference at 2:30 p.m. UTC. The market expects the bank to cut the rates by 25 bps towards 4.25%. A surprise is unlikely, but new details in its statement may have a noticeable impact on all CAD pairs. If BOC signals that more rate cuts are possible, USD/CAD will probably continue to rise and break above 1.35600. Conversely, a more BOC hawkish stance may push the pair lower, possibly towards 1.34800. In addition, the US JOLTS Job Opening report at 2:00 p.m. UTC may spur extra volatility in USD pairs. Higher-than-expected results will strengthen the greenback and pull USD/CAD higher, while lower-than-expected figures will negatively affect the pair.