Strong Safe-Haven Demand Pushes Gold Higher
On Monday, the gold (XAU) price continued to establish new record highs for the second consecutive trading session, as geopolitical tensions and macroeconomic uncertainties fuelled central bank purchases of precious metals.
Reuters reported that the People's Bank of China (PBOC) added 160,000 troy ounces of gold to its reserves in March. Turkey, India, Kazakhstan, and some Eastern European countries have also been actively buying gold this year.
"China has now been adding gold to its reserves for 17 consecutive months. It supports our view that central banks remain firm believers in gold and continue to see value in it," said Krishan Gopaul, the senior EMEA analyst at the World Gold Council.
According to the Commodity Futures Trading Commission, large speculators increased their net-long exposure in gold by 20,493 contracts in the previous week, now holding a 4-year record of 178,213 contracts. The speculative long side of the trade is becoming overcrowded, so a sharp correction may occur if there is a fundamental impetus to trigger it.
"If we continue to see strong data, which indicates that the Federal Reserve is in no hurry to cut rates, then gold will not be able to sustain the gains," said Bart Melek, the head of commodity strategies at TD Securities.
At the same time, the market believes that the Federal Reserve (Fed) will start easing its monetary policy at some point in 2024. Investors currently price in a 51.4% chance of a 25-basis-point rate cut by the Fed in June, even though recent US economic statistics have been stronger than expected. Some believe that the Fed will have to lower the rates in the face of still-high inflation, which also supports the price of gold.
XAU/USD was rising slightly during the Asian and early European trading sessions. Today, the economic calendar is rather uneventful. Traders should monitor developments on the geopolitical front, specifically in the Middle East, where Israel began a fresh round of ceasefire talks with Hamas. If these talks are successful, gold may experience a downward correction. Still, technical factors suggest a continuation of a bullish trend.
"Spot gold may break resistance at $2,353 per ounce and rise towards the $2,367–$2,389 range," said Reuters analyst Wang Tao.
The Euro Grows Despite Decreasing Hopes for a Rate Cut by the Fed in June
On Monday, EUR/USD climbed towards 1.08600 due to positive market sentiment.
The EUR/USD pair rebounded towards 1.08600 as demand for riskier assets increased. Despite decreasing expectations of a rate cut by the Federal Reserve in June, the market remained optimistic. The S&P 500 futures opened slightly higher, and 10-year US Treasury yields climbed to a 4-month peak near 4.43%, reflecting that anticipations of interest rate reductions have shifted towards the latter half of the year.
The US dollar's reaction to the strong March Nonfarm Payroll report, which decreased expectations for imminent rate cuts, was rather subdued. The US Dollar Index (DXY) declined slightly towards 104.30. Now, the market's attention shifts towards the upcoming US Consumer Price Index (CPI) report for March, which will be released on Wednesday. Predictions suggest an increase in annual headline inflation towards 3.4% from February's 3.2%, while the core CPI is expected to slightly decrease from 3.8% to 3.7%.
EUR/USD declined slightly in the Asian and early European trading sessions. The economic calendar is relatively light today, but the release of the US Economic Optimism Index at 2:00 p.m. UTC could potentially trigger some above-normal volatility in all USD pairs. Higher-than-expected figures will lower the probability of an interest rate cut by the Fed in June, putting downward pressure on EUR/USD. Conversely, lower-than-expected figures might potentially push the euro higher. Key levels to watch are 1.08220 and 1.08770.
AUD/USD Continues to Rise Despite Weak Consumer Confidence
The Australian dollar (AUD) gained 0.38% on Monday as the US Dollar Index (DXY) weakened due to technical selling.
AUD/USD has managed to stay within a bullish trend for almost 7 months now as the market continues to expect the Reserve Bank of Australia (RBA) to be less dovish in 2024 compared to the Federal Reserve (Fed). According to interest rate swap market data, investors are currently pricing in just 27 basis points (bps) worth of rate cuts by the RBA and roughly 60 bps of cuts by the Fed this year. However, the divergence in monetary policy expectations between the two central banks has been narrowing lately. The US economic data were better than expected, while the latest Australian report disappointed investors. The Australian balance of goods deteriorated in February, and building approvals dropped sharply. Most recently, Westpac Banking (NYSE:WBK) Corporation reported that consumer sentiment worsened in April, making it more likely that the RBA may turn more dovish in the months ahead. Thus, AUD/USD may experience downward pressure in the medium term.
AUD/USD was essentially unchanged during the Asian and early European trading sessions. Rising iron ore prices and carry-trade demand against the Japanese yen have been supporting the Australian dollar. The economic calendar is relatively uneventful today, so AUD/USD may continue to move sideways with a minor bullish tilt. The next significant release is the US inflation report, due on Wednesday at 12:30 p.m. UTC. Higher-than-expected figures may finally break the bullish trend in AUD/USD, while lower-than-expected results may extend it further.