Gold Rises as Traders Still Anticipate an Imminent Rate Cut by the Fed
The gold (XAU) price rose by 0.34% on Monday as traders continued to expect an interest rate cut by the Federal Reserve (Fed) in June while geopolitical tensions persist.
"Gold can easily hit the $2,300 levels or higher in the Q2, as discretionary traders and exchange-traded fund investors, who so far have not really participated in the rally, come into the market once rate cuts are confirmed," said Bart Melek, the head of commodity strategies at TD Securities.
However, the upcoming economic data should come out weak to confirm the rate cuts, but this hasn't been the case lately. Last Thursday, the S&P Global's Purchasing Managers' Indices (PMIs) figures were higher than expected, while existing home sales surged to a 1-year high, prompting a decline in XAU/USD.
Overall, the market continues to price in a 70% probability that the Fed will ease its monetary policy in June, but economic data may decrease this confidence. Traders are preparing for the next big event—Friday's Personal Consumption Expenditure (PCE) Price Index report. Any large moves in the market are unlikely ahead of the event, so gold will likely trade sideways until then.
XAU/USD was essentially unchanged during the Asian and early European trading sessions. Today, two US reports may add a little volatility to the market: US Durable Goods Orders at 12:30 p.m. UTC and CB Consumer Confidence at 2:00 p.m. UTC. Stronger-than-expected figures, indicating an increase in consumer spending, will likely decrease the probability of a rate cut by the Fed and have a bearish impact on XAU/USD. Conversely, weaker-than-expected figures may trigger an upward move.
"Spot gold may retest resistance at $2,183 per ounce, a break above which could lead to a gain into the $2,188–$2,196 range," said Reuters analyst Wang Tao.
The Euro Rose Modestly on the Slipping US Dollar
The euro (EUR) rose slightly on Monday as the US dollar declined. However, the euro's increase was capped due to the surge in US Treasury yields.
Although there is optimism regarding US economic growth, the US Dollar Index (DXY) struggles to rise amid mixed messages regarding the Federal Reserve's approach to interest rate cuts. Last week, the Fed indicated its plan to reduce rates by 75 basis points throughout the year. However, concerns raised by several officials about persistent inflation and unexpectedly strong US economic data have made traders unsure about where the USD trend is going, resulting in subdued and range-bound movements in EUR/USD.
On the other hand, the euro is facing downward pressure due to expectations of a rate decrease by the European Central Bank (ECB) in June. Fabio Panetta, the Governor of the Bank of Italy, stated that the ECB is considering cutting interest rates as inflation slows, moving closer to the 2% target more rapidly than anticipated. Additionally, ECB Chief Economist Philip Lane highlighted that the bank might discuss interest rate reductions once there is greater assurance that wage growth is moderating. These developments are limiting the potential gains in EUR/USD.
EUR/USD was moving sideways in the Asian and early European trading sessions, oscillating within 1.08370–1.08440. Investors are awaiting 2 US report releases: Durable Goods Orders at 12:30 p.m. UTC and the CB Consumer Confidence Index at 2:00 p.m. UTC. Weaker-than-expected figures may extend the upward movement in the pair. However, figures exceeding the forecast might lead to a decline towards 1.08000.
AUD/USD May Be Volatile Due to the Release of a CPI Report
The Australian dollar (AUD) gained 0.38% on Monday as the US dollar retreated due to technical profit-taking and after the US released slightly weaker-than-expected new home sales figures.
Although AUD/USD has lost some ground since mid-March, the general bullish trend remains intact. Fundamentally, there is a bullish divergence in monetary policies between the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed), favouring the Australian dollar. The market expects the RBA to be less dovish in 2024 than the Fed. According to the interest rate swaps market data, investors are pricing in just 42 basis points (bps) worth of rate cuts by the RBA in 2024 but expect 80 bps of reductions by the Fed. However, these expectations will be tested this week as 2 important inflation reports will be released. Australia will publish its Consumer Price Index (CPI) report tomorrow morning, while the US will release the Personal Consumption Expenditures Price Index report on Friday.
AUD/USD was essentially unchanged during the Asian and early European trading sessions. US reports may affect the pair today: US Durable Goods Orders at 12:30 p.m. UTC and CB Consumer Confidence at 2:00 p.m. UTC. Stronger-than-expected figures, showing a rise in consumer spending, will likely decrease chances of a soon rate cut by the Fed, putting a bearish pressure on AUD/USD. Conversely, weaker-than-expected figures may push the pair higher. However, the main event for the pair will be tomorrow at 12:30 a.m. UTC when the Australia Bureau of Statistics will publish its monthly CPI Indicator. The market expects the headline CPI to be at 3.5% in February. Higher-than-expected results may prompt the RBA to be even less dovish, pushing AUD/USD higher above 0.66000. However, lower-than-expected CPI numbers may bring AUD/USD below 0.65100.