Gold Price Remains Elevated Amid Rising Tensions and Rate Cut Hopes
The gold (XAU/USD) price rose 0.19% yesterday and continued to trade near all-time highs as safe-haven demand increased due to geopolitical risks in the Middle East.
Apart from the ongoing tensions in the Middle East, growing investors' optimism about the upcoming reduction in US interest rates gave gold an additional boost. Indeed, after the Federal Reserve (Fed) Chair Jerome Powell signaled an imminent start to policy easing, traders have priced in almost 100 basis points (bps) worth of rate cuts by the end of this year.
Traditionally, gold has been used as a hedge against geopolitical risks, and it tends to rise in a low-interest-rate environment. Moreover, there is also a structural demand on the part of central banks.
"There might be some indication that China is going to come back in, but even if they don't, demand from central banks has been pretty robust regardless of price this year, and that's going to continue", said Peter A. Grant, Vice President and Senior Metals Strategist at Zaner Metals.
XAU/USD was essentially unchanged during the Asian and early European trading sessions. Today, traders should watch the US CB Consumer Confidence Index (CCI) report due at 2:00 p.m. UTC.
According to the US Bureau of Economic Analysis, personal consumption expenditures represented nearly 68% of the US Gross Domestic Product (GDP) in Q2 2024. Thus, consumer sentiment changes may affect the Fed's interest rate decisions.
The market expects the CCI to rise towards 100.7. Lower-than-expected figures will likely exert additional bearish pressure on the US Dollar Index (DXY) and may push gold prices higher. However, a stronger rise in consumer confidence may bring XAU/USD down, possibly towards $2,500.
"Spot gold may retrace to $2,489", said Reurest analyst Wang Tao.
Euro Trades Sideways, Awaiting New Data
EUR/USD moved sideways within a range of 1.11500–1.12000 on Monday as the market awaited the next key data release later this week. Also, tensions in the Middle East partially offset investors' optimism for imminent US interest rate cuts.
The US Durable Goods Orders data rose 9.9% in July instead of the expected 4%, giving the US dollar (USD) some support. However, major currencies remained near their respective all-time highs, and the US Dollar Index (DXY) remained near its lowest point in over a year.
The possibility of a reduction in US interest rates in September put downward pressure on the greenback following a statement by Federal Reserve (Fed) Chairman Jerome Powell. He hinted at a possibility of a soon rate cut at his speech in Jackson Hole on Friday.
The question is no longer whether the Fed will reduce interest rates in September but rather by how much, according to David Chao, global market strategist at Invesco for Asia-Pacific, excluding Japan.
EUR/USD continued to move within 1.11500–1.12000 today. Market participants will be awaiting the US Consumer Confidence data release at 2:00 p.m. UTC. The market expects the confidence index to be at 100.9.
If the data exceed expectations, it may lead to a pullback in EUR/USD towards the 1.11400 support level. If the data falls short of expectations, it could ignite some bullish momentum and push the pair towards the 1.12000 resistance level.
The Upcoming Australian CPI Report Will Test the Recent Rally in Australian Dollar
The Australian dollar (AUD/USD) dropped by 0.31% against the US dollar (USD) on Monday as investors sought security in safer assets due to rising geopolitical tensions in the Middle East.
"Geopolitical tension, absolutely, is a factor. Israel and Lebanon moved the market for sure", said Amo Sahota, executive director at Klarity FX.
Additionally, the US Dollar Index (DXY) experienced a technical rebound from an eight-month low partly triggered by a better-than-expected Durable Goods Orders report.
However, this short-term recovery in the greenback occurred on lower-than-usual volume as U.K. markets were closed for a public holiday. Therefore, a drop in AUD/USD may only be temporary.
Indeed, the Durable Goods Orders report also revealed that orders for non-defense capital goods, excluding a key indicator of business investment intention—aircraft, decreased by 0.1% in July. Thus, the market continues to expect the Federal Reserve (Fed) to ease its monetary policy at every meeting until mid-2025.
Meanwhile, Australian data has further boosted investors' confidence in the local economy as the S&P Global Composite Purchasing Managers' Index (PMI) increased to 51.4 in August, indicating an expansion in business activity.
Currently, traders don't expect the Reserve Bank of Australia (RBA) to deliver a rate cut until 10 December 2024. As a result, the interest rate differential between the two currencies continues to favor AUD.
AUD/USD was rising during the Asian and early European trading sessions. Traders should focus on two reports: the US CB Consumer Confidence at 2:00 p.m. UTC today and the Australian Consumer Price Index (CPI) report tomorrow at 1:30 a.m. UTC.
Arguably, the CPI report will have a greater impact on the AUD pairs. The market expects the weighted inflation rate to have slowed towards 3.4% year-on-year in July. If the report indicates a higher inflation rate, AUD/USD will likely rally towards 0.68070. Conversely, lower-than-expected figures may push the pair down towards 0.67600.