Gold Holds Steady Ahead of US Reports and Political Developments
The gold (XAU) price stabilized near $2,400 on Monday, following three consecutive trading sessions of decline, as traders turned their attention towards upcoming US economic data.
XAU/USD reached an all-time high last week as markets largely anticipated a 25-basis-point (bps) rate cut by the Federal Reserve (Fed) in September.
Lower interest rates decrease the opportunity cost of holding gold, supporting the precious metal price.
On the political front, US Vice President Kamala Harris will launch her campaign in Wisconsin as a presidential candidate after she secured support from Democratic delegates.
Meanwhile, Donald Trump, the Republican party presidential candidate, pledged to cut corporate taxes and interest rates.
Lower tax revenues could potentially widen the US federal government's budget deficit. Many investors believe the deficit will continue to worsen under a second Democratic administration as well.
"While there is a lack of a clear pre-election commodities trade given the range of scenarios that could play out, gold stands out as a winner", stated JP Morgan in a note. "Structurally bullish drivers for gold, like growing concerns on complacency over the rise in fiscal debt, tariffs, and trade retaliations as well as broad America First rhetoric, are likely to remain intact", stated analysts.
XAU/USD declined slightly during the Asian and early European trading sessions. Today, traders should focus on the release of Existing Home Sales and Richmond Manufacturing Index at 2:00 p.m. UTC.
Higher-than-expected numbers will likely extend the short-term bearish trend in XAU/USD. Meanwhile, weak figures may pause or even break the existing trend.
The Euro Is on the Sidelines, Anticipating More Data
On Monday, the euro (EUR) moved sideways within 1.08750–1.09000, closing under the 1.09000 resistance level for the third time.
The US dollar (USD) increased slightly on Monday, amidst a calm trading session, as investors processed US President Joe Biden's decision to conclude his re-election campaign.
This development could potentially introduce more volatility into the Forex market. Market participants focus on the upcoming Federal Reserve (Fed) monetary policy meeting next week.
The central bank may signal its readiness to commence its easing cycle at the September meeting. The probability of rate reduction in September is 94.1%, and 97.4% in November, according to the CME FedWatch Tool.
Investors also closely watch the US presidential race, with former President Donald Trump leading. According to Jonas Goltermann, deputy chief markets economist at Capital Economics, these developments suggest that investors are largely looking to Trump's first term as a guide for expectations regarding his potential second term.
The first term implies higher Treasury yields, a stronger US dollar, and an overall positive environment for equity markets.
Analysts noted that the European Central Bank (ECB) didn't respond clearly at last week's policy meeting regarding the high expectations for a rate reduction in September.
The US rate cut in September is almost granted, while a 25-basis-point (bps) rate reduction by the ECB is anticipated in October.
EUR/USD has been trading within a relatively narrow 1.08870–1.08970 range throughout the Asian and early European trading sessions. Today, the eurozone Consumer Confidence figures and US Existing Home Sales data will be released at 2:00 p.m. UTC.
The reports are unlikely to significantly impact market sentiment and European and US monetary policy expectations.
China Rate Cuts Drag AUD Towards A 3-Week Low
The Australian dollar (AUD) plunged by 0.6% towards a three-week low on Monday after the People's Bank of China (PBoC) cut its base interest rates.
Yesterday, China's regulator surprised the market by cutting short-term and long-term interest rates. It was the most significant interest rate reduction since last August, raising concerns about the health of the Chinese economy.
Indeed, the decision was driven by disappointing economic data for Q2 published last week and aimed to stimulate growth in the medium term. As a result, the offshore Chinese yuan (CNH) weakened, prompting traders to sell the Australian dollar because of the country's close economic reliance on the Chinese market.
Moreover, China's weak growth prospects have caused copper and iron prices to plunge, further pressuring AUD.
Fundamentally, the market expects the Reserve Bank of Australia (RBA) to remain relatively hawkish for at least another six months. Unlike the Federal Reserve (Fed), which is widely expected to deliver a 25-basis-point rate cut in September, RBA is anticipated to hold the rates unchanged until April 2025.
This divergence in monetary policy expectations between the Fed and the RBA may support the Australian dollar in the long term.
AUD/USD continued to decline slightly during the Asian and early European trading sessions. Today, the pair may experience above-normal volatility in the American session due to the release of two US reports at 2:00 p.m. UTC: Existing Home Sales and Richmond Manufacturing Index.
Lower-than-expected results may pause the decline in AUD/USD and pull the pair higher, possibly above 0.66500. However, stronger-than-expected figures may extend the bearish trend in AUD/USD towards 0.66000.