Gold Moves Sideways, Awaiting the NFP Report
XAU/USD has been moving sideways since 24 May within the 2,320.00– 2,360.00 range. The pair fell by 1.01% yesterday.
Gold is awaiting any details on the US interest rate trajectory. It declined slowly on Tuesday as traders were cautious about the Friday release of the US nonfarm payroll (NFP) report. The data may provide more clarity on the timing of a potential interest rate cut by the Federal Reserve (Fed), particularly following recent economic data that indicated that the Fed has room to lower the base rate. The US dollar (USD) has now stabilized in anticipation of Friday's report. Despite yesterday's data on JOLT Job Openings being worse than expected, it didn't significantly impact XAU/USD.
The US Dollar Index (DXY) increased by 0.1% yesterday. According to currency strategists surveyed by Reuters, the USD is expected to weaken slightly over the next 12 months, as it is considered overvalued. Meanwhile, the World Gold Council reports that net purchases of gold by global central banks rose to 33 metric tonnes in April, up from a revised net buying of 3 tonnes in March. This indicates that the high demand for gold persists despite its high prices.
Investors are awaiting this Friday's US NFP report, which will help assess the state of the US economy and provide more clarity on potential changes in interest rates. Today, the release of the ADP Employment Change report at 12:15 p.m. UTC and the ISM Services Purchasing Managers' Index (PMI) data at 2:00 p.m. UTC could influence XAU/USD. These reports might trigger a breakout from the current trading XAU/USD range of 2,320.00–2,360.00.
The Euro Rebounded on Weaker US Jobs Data
The euro (EUR) declined on Tuesday but rebounded from the 1.08600 level due to lower-than-expected US JOLTs Job Openings figures.
The number of job openings decreased by 296,000 to 8.059 million in April 2024, marking the lowest level since February 2021 and falling below the market forecast of 8.34 million. The recent softer US macroeconomic data indicate signs of a cooling economy and reinforce expectations of an imminent interest rate cut by the Federal Reserve (Fed) later this year. These expectations maintain low US Treasury bond yields and weaken the US dollar (USD), providing some support to EUR/USD. However, the gains appear limited as traders might prefer to remain cautious ahead of Thursday's European Central Bank (ECB) monetary policy meeting.
As policymakers have widely signaled in recent weeks, the ECB is expected to cut interest rates by 25 basis points at the meeting on 6 June. This is expected to be the first rate cut since March 2016 and will coincide with the release of the latest economic projections. Additionally, traders will examine comments from ECB President Christine Lagarde for insights into the interest rate path following the rise in eurozone inflation in May. These factors will play a crucial role in affecting the EUR/USD trend.
EUR/USD declined slightly during the early European trading session. Today, traders should focus on two key US reports: the ADP Employment Change at 12:15 p.m. UTC and the ISM Services Purchasing Managers' Index (PMI) at 2:00 p.m. UTC. These releases may trigger some volatility in USD pairs. If the figures are better than expected, it will almost certainly push EUR/USD lower, potentially below 1.08600. Conversely, if the figures disappoint, the bullish trend in EUR/USD will likely extend, and the pair may rise towards 1.09100.
Market Awaits Bank of Canada's Interest Rate Decision
USD/CAD gained 0.36% on Tuesday as the US Dollar Index (DXY) corrected upwards following a sharp decline towards 104.00.
The latest Bank of Canada (BOC) Gross Domestic Product (GDP) data released on Friday showed that economic growth remained flat after a strong rise of 0.5% in January. The real gross domestic product grew by 0.4% in Q1, equivalent to an annualized rate of 1.7%. This figure fell short of the forecasted 2.3% rise and the Bank of Canada's April projection of 2.8%. The annualized growth rate for the previous quarter was revised down to 0.1% from 1%. Additionally, the regulator's core inflation measures have shown improvement. The year-on-year increase in the Consumer Price Index (CPI) eased from 3.2% to 2.9% in April, while the annual rate of the CPI median also decreased from 2.9% to 2.6%.
Douglas Porter, chief economist at BMO Financial Group, noted that Canada's economy has expanded by a meager 0.5% in the past year.
"While the downside surprise in Q1 was driven by a big cut in business inventories, the reality is that underlying growth remains well short of potential, and slack is building for the overall economy," he wrote in a report following the GDP release.
"For the Bank of Canada, we believe the main message is that the output gap is widening, as reinforced by a less-tight job market, modestly increasing the chances of a rate cut next week (5 June)," he added.
USD/CAD declined slightly during the Asian and early European trading sessions. Today's main event is the BOC interest rate decision, due at 1:45 p.m. UTC. The Bank of Canada is anticipated to reduce its policy interest rate by 25 basis points to 4.75% in response to high mortgage rates and borrowing costs amid easing inflation and slower economic growth. However, some economists suggest the bank might delay the rate cut until July. If the regulator delivers the rate cut, the Canadian dollar will weaken, while USD/CAD will rise. Conversely, if the rate remains unchanged, it will surprise market participants and could trigger a sharp decline in USD/CAD, possibly falling below 1.36000.