Gold Remains Flat as Investors Await Fed Comments
Gold (XAU/USD) was essentially unchanged on Monday as investors awaited new signals from the Federal Reserve regarding the monetary policy.
Investors appear hesitant and are waiting for further guidance from the US central bank before placing any large orders. As a result, attention is focused on the July Federal Open Market Committee (FOMC) meeting minutes due on Wednesday and Fed Chair Jerome Powell's upcoming speech at the Jackson Hole Symposium on Friday.
These events will likely significantly influence the short-term price movements of the US dollar (USD) and help determine the near-term trajectory for gold.
On Monday, US Secretary of State Antony Blinken announced that Israel has agreed to a proposal aimed at resolving the issues delaying a Gaza ceasefire and urged Hamas to follow suit. Still, concerns of a broader conflict persist.
Meanwhile, markets continued to price in a total of 100 basis points (bps) in rate cuts by the Fed this year. Additionally, a Reuters report indicated that the People's Bank of China (PBoC) has allocated new gold import quotas to several commercial banks, anticipating renewed demand despite the high prices.
XAU/USD moved sideways during the Asian and early European trading sessions. Investors should closely watch geopolitical developments today, as escalating conflicts could fuel safe-haven demand and lift gold prices.
However, renewed ceasefire negotiations this week may ease tensions in the Middle East, potentially shifting investors' interest towards riskier assets.
"Spot gold may retest support at $2,487 per ounce, following its failure to break resistance at $2,507", said Reuters analyst Wang Tao.
Euro Moves Sideways, Awaiting the FOMC Minutes
EUR/USD gained 0.51% yesterday, closing below the 1.11000 key resistance level. The euro was influenced by expectations that the Federal Reserve (Fed) might provide further indications of impending rate cuts this week.
This week, investors are focused on the release of the Federal Open Market Committee (FOMC) minutes from the July meeting on Wednesday and the speech by Fed Chair Jerome Powell at the Jackson Hole symposium on Friday.
These events will provide insights into the outlook for the US interest rates. Recently, Fed members have indicated a possible easing of monetary policy in September. According to the CME FedWatch Tool, there is a 75.5% chance of a 25-basis-point (bps) reduction in interest rates in September and a 24.5% possibility of a 50-bps reduction.
Thierry Wizman, a global FX and rate strategist at Macquarie, said markets were expecting dovish comments from Fed Chair and other central bank speakers at the Jackson Hole economic symposium.
If they acknowledge the US economy's path towards disinflation, it would confirm the likelihood of a September interest rate cut. Markets will focus on how much Powell opens the door to a 50-bps reduction at upcoming monetary policy meetings.
Expectations of a more dovish Fed policy this week caused the US dollar to struggle near a seven-month low against the euro. EUR/USD peaked at 1.10877 on Tuesday, while risk appetite was boosted by news that the Israeli Prime Minister, Benjamin Netanyahu, accepted a ‘bridge proposal’ from Washington to resolve disputes blocking a ceasefire agreement in Gaza.
EUR/USD has been moving sideways during Asian and early European trading sessions due to the lack of economic data that may influence the pair. The key event for the pair is tomorrow's FOMC minutes, due at 6:00 p.m. UTC. The market expects to see a dovish outlook from the Fed.
Traders Bet on Aggressive Fed Rate Cuts, Lifting Australian Dollar
The Australian dollar (AUD) surged by 0.93% against the US dollar (USD) on Monday as traders continued to bet on aggressive rate cuts by the Federal Reserve (Fed) in the months ahead.
Investors expect Jerome Powel, the Chairman of the Fed, to clarify in his Friday speech whether the US central bank is planning to cut the rates by 25 or 50 basis points (bps) in September.
Yesterday, Neel Kashkari, Minneapolis Fed President, suggested cutting interest rates in September may be appropriate due to the increasing likelihood of a weakening labor market.
Still, markets might be overestimating the speed and extent of the potential cuts. Traders have already priced in roughly 120 basis points (bps) worth of rate cuts by the Fed by February 2025.
It's the most aggressive stance on monetary policy easing among all major central banks. Thus, the US Dollar Index (DXY) may correct sharply upwards if August US inflation and employment data surprise the market by being stronger than expected.
Meanwhile, the Reserve Bank of Australia (RBA) has ruled out an immediate interest rate cut and indicated that high rates may persist for a longer period to control inflation.
The minutes of the RBA's previous board meeting released earlier today revealed that the bank's board was considering raising interest rates due to persistently high inflation and signs of a strengthening economy.
Unsurprisingly, AUD/USD reached a one-month high as the divergence in monetary policy expectations between the Fed and the RBA widened even further, supporting the Australian dollar.
AUD/USD declined slightly during the Asian session but stabilised during the early European trading hours. Today, the main focus is on the Fed speakers. FOMC members Raphael Bostic and Michael Barr will give speeches at 5:35 p.m. and 6:45 p.m. UTC.
If they give a dovish message, AUD/USD may continue to rise slowly, targeting 0.67500. Conversely, the pair may drop but probably stay above 0.66400 if members advocate for a more balanced or less dovish approach.