Gold Continues Rising Due to Macroeconomic and Geopolitical Uncertainty
The gold (XAU) price rose by 0.28% on Monday despite a minor increase in the US Dollar Index (DXY).
XAU/USD has been rising for 9 consecutive trading sessions as the sentiment in precious metals and Bitcoin remains bullish due to general macroeconomic and geopolitical uncertainty. Also, the expectation that major central banks will start easing monetary policy in 2024 adds support to the assets. According to the Commodity Futures Trading Commission, large speculators—such as hedge funds—raised their net long positions in COMEX gold by 63,018 contracts, reaching 131,060 in the week ended 5 March. Now, they maintain their largest net-long exposure in gold since 2 January.
"With large speculators having increased net-long exposure at their fastest weekly pace in 3.5 years last Tuesday, gold is clearly in demand and not a market to short for any length of time whilst traders expect Fed cuts," said Matt Simpson, the senior analyst at City Index.
XAU/USD was declining slightly during the Asian and early European trading sessions as traders prepared for the US inflation report release at 12:30 p.m. UTC.
"If the data comes in hot, above last month's report, then that's going to probably be a little troublesome to the gold market and might cause some near-term selling pressure," said Jim Wyckoff, the senior analyst at Kitco Metals.
Indeed, the market has been too eager to assume that inflation has been defeated and the Federal Reserve will cut interest rates in June. Therefore, if the Consumer Price Index (CPI) report is better than expected, XAU/USD may drop sharply. Conversely, if the data aligns with the forecast or is slightly lower, XAU/USD may continue to rise slowly. 'Spot gold may retest support at $2,175 per ounce, a break below which could open the way towards $2,152–$2,164 range,' said Reuters analyst Wang Tao.
EUR/USD Remains in a Downtrend Ahead of the US CPI Report
The euro (EUR) lost 0.1% on Monday as traders' repositioning ahead of the US inflation report pushed the US dollar slightly higher.
After failing to reach the pivotal 1.10000 level on Friday, EUR/USD has been in a downtrend. Fundamentally, the pressure on the pair is bearish because the market expects more rate cuts from the European Central Bank (ECB) in 2024 than from the Federal Reserve (Fed). However, the difference is insignificant, so it's unlikely that a sustainable downward trend in EUR/USD will last long. Right now, the market awaits any fresh data that could clarify how soon the ECB and the Fed could commence their rate easing cycles this year.
The US Consumer Price Index (CPI) report will be published today at 12:30 p.m. UTC and can certainly clarify the future path of US interest rates. The market expects the core CPI figures to rise by 0.3% month-on-month in February. 'Were we to get a 0.2%, I think the market will be back on the scent of a possible May first Fed rate cut, and if we were to get a 0.4%, I think the market will be casting some doubt on a cut as early as June. So in that sense, I think it's right to think that there will be a high degree of market sensitivity to anything other than a 0.3% core print,' said Ray Attrill, the head of FX strategy at National Australia Bank. Last month, the US CPI numbers were higher than expected, resulting in a swift 0.6% decline in EUR/USD. If today's CPI figures are higher than expected, the bearish impact on the euro may be quite strong because the market has put too much faith in a soft inflation reading. If the CPI reading is lower than expected, the impact on EUR/USD could be relatively muted. Key levels to watch are 1.09800–1.10000 and 1.091000–1.09000.
AUD/USD Remains in a Bullish Trend, but the Rally Pauses
The Australian dollar (AUD) lost 0.2% on Monday but held above the critical 0.65900 level, remaining within a bullish trend.
AUD/USD rose last week after the Australian Gross Domestic Product (GDP) figures came out higher than expected, while the US statistics revealed weakness in the labor market. Fundamentally, the pressure on AUD/USD remains bullish as the market expects fewer rate cuts from the Reserve Bank of Australia (RBA) in 2024 than from the Federal Reserve (Fed).
Although the divergence in interest rate paths plays a major role in exchange rate movements, the Australian dollar—a highly risk-sensitive currency—is also driven by regional trade flows and commodity prices. AUD/USD may face bearish pressure due to decreasing demand for commodities as China struggles to revive its economy. Furthermore, there is a risk that the market is too optimistic when it comes to rate cuts by the Fed. If the US inflation doesn't slow as expected, AUD/USD may drop.
AUD/USD was essentially unchanged during the Asian and early European trading sessions. Today, traders should focus on the release of the US Consumer Price Index (CPI) data at 12:30 p.m. UTC. If the inflation figures are higher than expected, AUD/USD will almost certainly drop, possibly below 0.65600. However, the bullish trend in AUD/USD will likely continue if the CPI figures are lower than expected. In this case, AUD/USD may attempt to break above 0.66600.