Gold Rises After Disappointing US Economic Reports
The gold (XAU/USD) price rose by 0.25% on Tuesday as the US dollar (USD) weakened. Greenback declined after disappointing consumer confidence and home sales data, while uncertainty around US President Donald Trump’s planned tariffs kept traders cautious.
Although Trump said that the administration wouldn’t impose all of the announced taxes on 2 April and that some countries might get breaks, gold investors preferred to maintain their long positions.
"Investors are concerned about the state of the world, especially with US policies being what they are, and so they’re buying gold as an alternative asset because they’re concerned that the US government may throw the world into a global recession", said Jeffrey Christian, managing partner of CPM Group.
Indeed, the US Consumer Confidence report indicated a decline in sentiment for four months, with households being the most pessimistic about the future in 12 years.
"Households were expecting President Trump to lead with tax cuts and deregulation, but instead, we have austerity and the prospect of significant trade tariffs. This is prompting anxiety about household finances and job prospects, with the concern being this translates into weaker spending", said James Knightley, chief international economist.
Depressing mood among consumers might prompt the Federal Reserve Fed to speed up rate cuts, which may benefit gold. At the same time, Raphael Bostic, Atlanta Fed President, said he expected just one 25-percentage-point rate cut by the year-end, as inflation remains elevated. Overall, a strong bullish trend in XAU/USD remains intact amid geopolitical and economic uncertainties.
"The odds of rate cuts seem to be backing off a little bit, and I think overall, it’s still really bullish for an inflationary metal like gold... I would say the next level up is probably around $3,125", said Daniel Pavilonis, senior market strategist at RJO Futures.
XAU/USD fell during the Asian and early European trading sessions but remained above the 10-day moving average. Today’s macroeconomic calendar is rather uneventful, but traders should monitor any new developments around trade tariffs. The US Durable Goods report at 12:30 p.m. UTC may move XAU/USD. However, its impact will likely be limited as it’s considered a lagging indicator. Additionally, two Fed officials will give speeches, adding volatility to all USD pairs. Key levels to watch for XAU/USD are support at $3,000 and resistance at $3,020.
Euro Remains Under Bearish Pressure
The euro (EUR/USD) lost 0.08% against the US dollar (USD) on Tuesday, despite the US Dollar (DXY) weakening due to disappointing US macroeconomic reports.
EUR/USD has been declining for five consecutive trading sessions as the optimism around German fiscal expansion slowly waned. Meanwhile, the uncertainty around US President Donald Trump’s tariffs kept traders cautious. Trump’s tariffs are widely expected to weigh down on economic growth, trigger further trade tensions, and drive up inflation. All these factors damage investors’ sentiment and support safe-haven demand for the US dollar and the Japanese yen. Risk-sensitive currencies such as the Australian dollar (AUD) remain under pressure. The euro also feels a negative impact because the eurozone is one of the most export-driven economies in the world.
Meanwhile, Francois Villeroy de Galhau, the French central bank chief, told a German newspaper there is still room to lower interest rates further. He commented that the 2.5% deposit rate could fall to 2% by the end of the summer. Overall, the market still expects the European Central Bank (ECB) to be a bit more dovish compared to the Federal Reserve (Fed). Investors price in a 32% chance of two 25-basis-point (bps) rate reductions by the ECB by the year’s end and a 27% probability of a similar cut by the Fed.
EUR/USD fell during the Asian and early European trading sessions, dropping below the important 10-day moving average. Today’s economic calendar is rather uneventful. Traders should watch for new developments around US trade tariffs and the ongoing Russia- Ukraine peace talks. The US Durable Goods report at 12:30 p.m. UTC may trigger a move in EUR/USD, but its impact will likely be limited. Additionally, Fed officials will give speeches today, possibly adding volatility to the USD and related pairs. Key levels for EUR/USD traders to watch are support at 1.07670 and resistance at 1.08100.
AUD Declines Despite Weakening US Dollar
The Australian dollar (AUD/USD) gained 0.25% against the US dollar (USD) on Tuesday as the greenback weakened due to disappointing US consumer confidence and home sales data.
Yesterday’s report by the US Conference Board showed that consumer confidence in March plunged to the lowest level in more than four years. Households worry about a possible recession in the future and higher inflation because of tariffs. In addition, the New Home Sales report came out below market expectations, further damaging the greenback.
"Headwinds like weak homebuying sentiment and heightened economic uncertainty from tariffs could limit any growth in coming months", said Alice Zheng, an economist at Citigroup.
Despite the possibility that weak economic data could push the Federal Reserve (Fed) to accelerate rate cuts, the market doesn’t widely expect such a scenario. Interest rate swaps market data imply only a 27% probability of two 25-basis-point (bps) rate reductions by the end of the year. At the same time, the likelihood of a similar move by the Reserve Bank of Australia (RBA) is currently at more than 30%.
AUD/USD rose sharply during the Asian and early European trading sessions, even as the latest Australian Consumer Price Index (CPI) report was weaker than expected. Australian Bureau of Statistics reported that inflation slowed in February, helped by a fall in electricity prices, while the decrease in home building costs and rent supported the case for more rate cuts. The RBA cut interest rates for the first time in over four years last month but said it was cautious about the prospects of further easing. The bank closely monitors the underlying inflation, which is expected to settle at 2.7% later this year, above the RBA’s 2–3% target.
"We are confident that the RBA will keep rates on hold on 1 April", said Luci Ellis, chief economist at Westpac, hinting that the next rate cut would be in May.