Gold Declines as Safe-Haven Demand Weakens; AUD/USD Rises on Hot Inflation Report
Octa | Oct 25, 2023 05:20AM ET
On Tuesday, the Nigerian naira (NGN) was the best-performing currency among the 20 global currencies we track, while the euro (EUR) showed the weakest results. The US dollar was the leader among the majors, while the Mexican peso (MXN) underperformed among emerging markets.
Gold (XAU) price decreased by 0.13% on Tuesday as some bulls closed their positions due to better-than-expected U.S. Purchasing Managers' Indices (PMIs) and slightly easing tensions in the Middle East.
The latest PMI report indicated an unexpected expansion in the U.S. private sector in October, highlighting the economy's strength and reinforcing speculations that the Federal Reserve (Fed) may continue hiking interest rates. The US Dollar Index (DXY) rallied on the news, but gold managed to hold above 1,960. XAU/USD started to recover by the end of the day, indicating that numerous geopolitical, debt, and credit risks remain on the agenda.
"We saw some profit-taking earlier in the session, and then traders came to buy the dip. 2,000 is still (on the) cards for the near-term or even a new record high if there is an escalation in the Middle East crisis," said Jim Wyckoff, the senior analyst at Kitco Metals.
Still, the market focus might soon shift away from geopolitical concerns and back to the U.S. macroeconomic policy.
"The direction of gold for the foreseeable future will be linked to the direction of interest rates. If the economy weakens, and there's a view in the market that we are entering a recession, then interest rates will likely decline, and the price of gold will likely go up," said Chris Mancini, the associate portfolio manager of the Gabelli Gold Fund.
XAU/USD rose in the Asian trading session but started to fall during the early European session. Today, the critical event is the Federal Reserve Chair Jerome Powell's speech at 8:35 p.m. UTC. He may clarify the trajectory of the U.S. base rate. If Powell indicates a possibility of more rate hikes or keeping the base rate at its current high level for longer, XAU/USD may decline. A less hawkish stance and subdued concerns about inflation could boost the gold price.
h2 AUD/USD Rose Firmly on Strong Inflation Figures/h2"Spot gold may retest a resistance of 1,985 USD per ounce, a break above which could open the way towards the 1,998–2,006 range," said Reuters analyst Wang Tao.
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The Australian dollar (AUD) gained 0.32% on Tuesday despite declining Purchasing Managers' Indices (PMI).
Earlier on Wednesday, AUD/USD rose strongly as the quarterly Consumer Price Index (CPI) numbers came out much higher than expected. Surprisingly strong CPI figures increase the probability of another rate hike by the Reserve Bank of Australia (RBA) at the next meeting on 7 November. According to Reuters, the market is now pricing in a 66% chance of a 0.25% rate hike and the base rate reaching 4.35%.
"While 4.35% should mark the peak in the cash rate, there is a risk it could tighten beyond that. Any easing remains a very long way off," said Adam Boyton, the head of Australian Economics at ANZ.
AUD/USD faced strong resistance in the 0.64000 area and pulled back in the Asian and early European trading sessions. Today, the Federal Reserve Chair Jerome Powell's speech may affect the pair. If Powell sounds more dovish, the bullish trend in AUD/USD may continue, potentially pushing the pair towards the important 0.64000 level.
h2 The Dow Jones Index Rose After Falling for Five Consecutive Trading Sessions/h2On Tuesday, the Dow Jones Industrial Average Index (DJIA) of the 30 largest U.S. companies (US30) surged by 0.62% after strong corporate reports and optimistic projections improved risk sentiment.
All three primary U.S. stock indices surged: giant companies had a significant portion of the gains due to the benchmark Treasury yields remaining stable, well below their recent highs. The U.S. business activity has seen an uptick this month, as indicated by yesterday's S&P Global's preliminary Purchasing Managers' Indices (PMI) data.
The U.S. 30 was falling during the trading session earlier today. This week will produce a lot of volatility for U.S. stocks as nearly one-third of the companies in the S&P 500 index will report their earnings in Q3. Today, traders should focus on the Boeing Company (NYSE:BA) and the International Business Machines Corporation (NYSE:IBM) reports. Also, the U.S. will release the Personal Consumption Expenditures (PCE) report on Friday, which might influence investors' rate hike expectations. For now, the U.S. 30 long-term bullish trend from 4 October remains intact, and traders can buy the dips as long as the index remains above 32,800.
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