US Trade Tariffs Push Gold Higher
The gold (XAU/USD) price rose by 1.23% on Monday, fuelled by a weaker US dollar (USD) and increased safe-haven demand amid concerns over US President Donald Trump's trade tariff policies.
Yesterday, Donald Trump said 25% tariffs on goods from Canada and Mexico will take effect on Tuesday. Last week, Trump threatened China with an additional 10% duty, which was also set to take effect on Tuesday, resulting in a cumulative 20% tariff on the country's exports. Beyond their immediate inflationary impact, tariffs generate uncertainty that ripples through financial markets and leaves investors uneasy regarding future economic prospects. As a result, many prefer to buy precious metals as a hedge against the potential rise of prices and economic instability.
Precious metals, such as gold and silver, are viewed as stores of value, offering a sense of security in times of market turbulence and providing a buffer against unpredictable developments.
"I think ultimately we are in a very bullish market, and gold can get much higher than $3,000... with tariffs and possible retaliation, I still think you're seeing central banks come in and buy", said Daniel Pavilonis, senior market strategist at RJO Futures.
XAU/USD was relatively flat during the Asian and early European trading sessions. The formal macroeconomic calendar is relatively uneventful today, so the probability of big moves is rather low. However, investors should monitor potential shifts in US trade policy and possible retaliatory actions of Canada and Mexico, as these factors could significantly impact market stability.
"Spot gold may break resistance at $2,894 per ounce, and rise to the $2,909 to $2,921 range", said Wang Tao, Reuters analyst.
Euro Gains on Stronger-than-Expected Inflation Data
The euro (EUR/USD) gained 1.07% against the US dollar (USD) on Monday after the stronger-than-expected eurozone Consumer Price Index (CPI) report reduced the chances of additional rate cuts by the European Central Bank (ECB).
According to a first estimate from the EU's statistics agency, inflation in the eurozone fell towards an annual rate of 2.4% in February, above the expected 2.3%. Higher inflation means that the ECB will likely adopt a more cautious stance on rate cuts. Although the market still expects the ECB to deliver a 25-basis-point rate cut later this week, the chances that it will keep the rates unchanged in April have risen towards 41%.
While the ECB's slightly less dovish stance could support EUR/USD, the eurozone's economic outlook remains clouded by potential tariff risks. Corporate CEOs and economists say Trump's tariffs on Canada and Mexico, scheduled to take effect on Tuesday, are covering more than $900 billion worth of annual US imports and would deal a serious setback to the global economy.
"The market is complacent regarding tariff impact, and this is likely just the beginning with tariffs on Europe and universal ones to follow suit over the coming weeks", said Andrzej Skiba, head of BlueBay US fixed income at RBC global asset management.
EUR/USD was falling during the Asian and early European trading sessions. The formal macroeconomic calendar is relatively uneventful today, so volatility will be rather low. However, investors should closely watch potential shifts in US trade policy and the development of Russia-Ukraine peace talks, as these factors could significantly impact market stability. In addition, the eurozone unemployment data at 10:00 a.m. UTC may trigger some volatility. Key levels to watch are the support at 1.04590 and the resistance at 1.05040.
Australian Dollar Hits a One-Month Low
On Monday, the Australian dollar (AUD/USD) gained 0.27% against the US dollar (USD) but failed to hold above the critically important 0.62300 level.
AUD/USD has been declining steeply since 21 February. The downward trend is exacerbated by growing worries over potential tariff-induced global recession risks and the decline in commodity prices, particularly those crucial to Australia's export-driven economy. These factors have triggered a shift in market sentiment, as investors perceive the Australian dollar as vulnerable to trade disputes and the diminished demand for raw materials. The steep depreciation reflects a market grappling with the prospect of a global slowdown, where tariffs act as a catalyst for economic contraction, and the reduced value of commodities further erodes Australia's terms of trade. According to Reuters, Australia has sought an exception to some of the proposed tariffs but with little luck, while Trump flagged possible taxes on farm imports in which Australia specialises.
Meanwhile, the Reserve Bank of Australia's (RBA) February meeting minutes took a hawkish turn, suggesting that additional rate cuts were unlikely and the regulator might hold the 4.10% rate for longer if inflation remained resistant. Still, the RBA was also worried about the damage tariffs could do to the global economy, suggesting that the central bank may opt for additional rate cuts in the worst-case scenario. Fundamentally, there is no divergence in monetary policy expectations between the RBA and the Federal Reserve. Investors expect both banks to deliver only one 25-basis-point rate cut in 2025.
AUD/USD fell during the Asian and early European trading sessions, hitting a one-month low. The disappointing Current Account report released at 12:30 a.m. UTC may have contributed to the decline. The economic calendar is relatively uneventful today. However, any news related to US trade policy might cause increased volatility in the market, affecting AUD/USD.