Gold Rose on Expectations of Interest Rate Cuts
On Friday, the XAU/USD pair showed strong growth, rising by 1.30%. The price increased to the local resistance level of $2,335.00, testing it several times throughout the day. The expected release of the Michigan Consumer Sentiment report did not provide clarity or specifics on the dollar, and the market largely ignored this news.
Many investors were anticipating new economic data from the US, especially after last week's reports indicated that inflation is beginning to slow and stabilise. These reports bolstered investors' hopes for interest rate cuts this year. The reports coming out this week, particularly the US Retail Sales data on Tuesday, weekly Jobless Claims on Thursday, and flash PMIs on Friday, are expected to provide more clarity. Several Fed officials are also scheduled to speak this week.
"Assessing the prospects for gold, the long-term fundamentals are favourable, but much depends on the US data. Given the potential for future rate cuts, gold has excellent potential and growth prospects. According to Reuters, 'data released last week showed some weakening in price pressures in the US, suggesting that the labour market was losing momentum, keeping hopes alive for a September rate cut.’ According to FedWatch, traders expect a 68% probability of a rate cut compared to the 63% forecasted last Thursday before the producer prices data was published. However, Minneapolis Fed President Neel Kashkari said on Sunday that it's a 'reasonable prediction' that the US central bank will cut interest rates once this year, likely waiting until December to do it.
Today, no significant price jumps are expected in the market. The XAU/USD pair is trading within the range of $2,320.00 to $2,335.00 and has the potential to break out of this range today. If the bearish trend continues, the price may correct to the support level of $2,300.00 and below. Conversely, if the trend reverses, growth towards the upper boundary of $2,335.00 is anticipated.
Euro Rebounded After a Weak US Consumer Sentiment Report
The euro (EUR) fell on Friday but rebounded slightly following a weaker-than-expected US Michigan Consumer Sentiment report.
French markets experienced a severe sell-off last week in anticipation of a snap election that could potentially grant a majority to the far right, posing risks both to the country's fiscal stability and the eurozone. European Central Bank policymakers informed Reuters that they had no plans to initiate emergency purchases of French bonds to stabilise the market after yield spreads over German bonds widened significantly due to a flight to safety. Analysts at JPMorgan cautioned,
"A French challenge to the region's fiscal arrangements would be problematic and have far-reaching implications." They added, "At this stage, the situation in the run-up to the first round of voting is still very fluid."
The US Dollar Index (DXY) remained above 105.5 on Friday, hovering near its highest levels since early May, following the Federal Reserve's updated projections last week, which suggested only one interest rate cut this year, potentially as late as December. Minneapolis Fed President Neel Kashkari echoed this sentiment on Sunday, calling it a 'reasonable prediction' to anticipate a single rate cut this year. These forecasts were made despite softer-than-expected US inflation figures for May.
EUR/USD remained relatively unchanged during the Asian and early European trading sessions. Today's trading session is likely to be quiet as the economic calendar features no major news releases. However, ECB President Christine Lagarde's speech today at 9:00 a.m. UTC could affect the euro. The key levels to watch are 1.06700 and 1.07200.
AUD Traders Brace for High Volatility Ahead of the RBA Rate Decision
The Australian dollar (AUD) lost 0.33% on Friday as the US Dollar Index (DXY) moved higher despite weaker-than-expected Consumer Sentiment data.
The fundamental pressure on AUD/USD remains bullish as the market expects the US Federal Reserve (Fed) to be more dovish for the rest of the year compared to the Reserve Bank of Australia (RBA). According to interest rate swaps market data, investors are pricing in almost 50 basis points (bps) worth of rate cuts by the Fed in 2024, whereas the RBA is expected to deliver less than 20 bps worth of cuts over the same period. Although the Australian economy underperformed in Q1, the latest labour market and real estate market data came out stronger than expected, lowering the probability of RBA rate cuts even further. Still, AUD/USD has failed to break above the critical 0.67000 level for more than a month now. Overall, however, the general bullish trend remains intact, and AUD/USD may rebound once again—especially if the US data continues to disappoint.
"The Reserve Bank of Australia (RBA) interest rate decision is due tomorrow at 4:30 a.m. UTC. Given that inflation remains above the central bank's 2%–3% target, while the unemployment rate is just around 4%, the probability of an early rate cut is rather low. The market expects the RBA to hold interest rates at 4.35% and anticipates the first rate cut no earlier than in December. Traders should watch for clues on future changes in monetary policy in the RBA's Rate Statement. If it sounds more hawkish than previously, AUD/USD may start rising towards 0.67000 again. Alternatively, a dovish statement may push the pair below 0.65700."