XAU/USD Declined After Stronger-Than-Expected US PMI Numbers
On Wednesday, the gold (XAU) price decreased by 0.87% as the US ISM Manufacturing Purchasing Managers' Index (PMI) numbers were better than expected.
The US ISM Manufacturing PMI rose slightly towards 47.4 in December 2023, surpassing market predictions of a 47.1 increase. However, manufacturing activity was still shrinking for 14 consecutive months, marking the longest period of decline since 2000 – 2001. XAU/USD stabilized above 2,040 after the Federal Open Market Committee (FOMC) minutes from the December meeting were released. The minutes revealed that officials expect the US interest rate to be lower in 2024, although they acknowledged significant uncertainty regarding the trajectory of monetary policy. Still, markets are pricing in approximately a 70% chance of the first rate cut in March, decreasing from 90% a week earlier. 'The Fed minutes suggest that many members endorsed the "higher rates for longer" narrative, while those that projected rate cuts in 2024 viewed cuts coming later in the year,' stated Quincy Krosby, the chief global strategist at LPL Financial (NASDAQ:LPLA).
XAU/USD was relatively flat during the Asian and early European trading sessions. Today, traders should focus on the US Initial Jobless Claims report at 1:30 p.m. UTC. Lower-than-expected figures may bring the gold price below 2,032. However, the local bearish trend in XAU/USD may reverse if the numbers are higher than expected. 'Spot gold may retest support of $2,028 per ounce, a break below could open the way towards the $2,016–$2,023 range,' said Reuters analyst Wang Tao.
Lowered Chances of US Rate Cuts Pulling Back AUD/USD
The Australian dollar continued declining on Wednesday, fueled by sell-offs and a decreasing chance of the US interest rate cut in Q1 2024, which supported the US dollar.
Morgan Stanley analysts are skeptical about the Federal Reserve initiating rate cuts in March. 'We think it will take until June for a data-dependent Fed to have clear and convincing evidence inflation will return to the 2% target, and therefore begin cutting rates,' they wrote in a client note.
The Reserve Bank of Australia held the base rate unchanged at 4.35% in its latest meeting, aligning with expectations. The central bank is now evaluating the impact of prior rate hikes on rising domestic demand-driven inflation. Future policy adjustments will be based on economic data and risks, focusing on global and domestic trends. The rate on Exchange Settlement balances remains at 4.25%.
During the Asian trading session, AUD/USD decreased but started to rise in the European session. In Australia, the economic calendar remains uneventful until next week's releases of the Retail Sales and Inflation Rate reports. Today, traders should focus on the US Initial Jobless Claims report coming out at 1:30 p.m. UTC as it may trigger some volatility.