Strong Safe-Haven Demand Pushes Gold Higher
On Tuesday, the gold (XAU) price increased for the fifth consecutive trading session due to rising demand for safe-haven assets. Furthermore, the US dollar continued to decline ahead of the release of the Federal Reserve's (Fed) latest monetary policy meeting minutes.
The US Dollar Index has been in a downtrend for a week now, and its weakness makes gold more attractive to international buyers. In addition, the geopolitical situation in the Middle East remains tense, with assaults on shipping routes in the Red Sea and Bab el-Mandeb Strait continuing. As a result, safe-haven demand for gold remains strong.
The protocols from the US central bank's January policy meeting will be released at 7:00 p.m. UTC. They may offer clues on the US rate hike path.
"We continue to see the likelihood that the Fed will lower rates by mid-2024, which is going to be an underlying supportive factor for the gold market. But, the Fed minutes will reiterate that rate cuts are going to be pushed back until May or June, which is certainly not going to help the gold market," said David Meger, the director of metals trading at High Ridge Futures.
XAU/USD was rising during the Asian and early European trading sessions. Today, traders should focus on the Federal Open Market Committee (FOMC) minutes at 7:00 p.m. UTC. Meeting minutes will shed light on the economic and financial circumstances that guided FOMC's decision on monetary policy in general and interest rates in particular. The release may be quite significant and cause immediate market reaction, especially during times of uncertainty. Any insights on the current sentiment inside the Fed might potentially force investors to adjust their interest rate expectations. If the minutes reveal that FOMC members were leaning dovish, XAU/USD may rally strongly. Conversely, gold may continue to fall if the minutes reveal a more hawkish stance inside the Fed.
"Spot gold may break resistance at $2,031 per ounce and rise towards 2,037," said Reuters analyst Wang Tao.
Today's FOMC Report May Break the Bearish Trend in EUR/USD
The euro (EUR) increased by 0.26% as US Treasury yields faced strong resistance and started to decline.
The US Treasury yields declined partly because of the People's Bank of China's interest rate cut. Moreover, the Federal Reserve Bank of Philadelphia's Business Outlook Survey and the Leading Economic Indicators didn't clearly support a stronger US dollar or a risk-on sentiment. Meanwhile, the European Central Bank (ECB) has identified growing wages as the primary threat to its 18-month battle against inflation. According to the ECB's analysis of wage agreements, salary growth is expected to stay elevated throughout the year. Additionally, more companies anticipate increasing prices, noted Marco Wagner, the senior economist at Commerzbank. Since mid-January, market expectations for rate cuts have decreased for both the Fed and the ECB, said Marvin Loh, the senior global macro strategist at State Street (NYSE:STT).
EUR/USD was rising slightly during the Asian and early European sessions. Today, the main focus is on the Federal Open Market Committee (FOMC) minutes at 7:00 p.m. UTC. The release is usually associated with increased market volatility. If the report indicates that Fed members are leaning dovish, EUR/USD may potentially break above the 1.08500 level. Otherwise, the mid-term bearish trend in the euro might continue.
Dovish BPOC and Cautiously Hawkish RBA Statements Supported AUD/USD
The Australian dollar (AUD) rose by 0.17% on Tuesday after the People's Bank of China (PBOC) cut interest rates to support its struggling property market.
AUD is a highly risk-sensitive currency, so it tends to rally whenever the outlook for global economic growth improves. Thus, AUD/USD increased immediately when the PBOC announced yesterday that it would cut interest rates to boost its ailing real estate sector. The dovish move by the central bank raised investors' hopes for additional stimulus that would lift global growth prospects, which is a positive development for commodity-exporting countries such as Australia.
Meanwhile, the Reserve Bank of Australia's (RBA) last policy meeting minutes, released on Tuesday, showed that board members need more time to be confident that inflation is declining. Indeed, the board agreed it was appropriate not to exclude the chance of a further increase in the cash rate. Overall, the minutes revealed a very cautious stance within the RBA, pushing AUD/USD higher.
AUD/USD was rising during the Asian and early European trading sessions. Today, traders should focus on the Federal Open Market Committee (FOMC) minutes at 7:00 p.m. UTC. If the minutes reveal that FOMC members sounded dovish, AUD/USD will likely continue to rise. Conversely, the bullish trend in AUD/USD may pause or reverse if the minutes reveal a more hawkish stance by Fed members. The short-term technical bias remains bullish as the Australian dollar holds above the important intraday level of 0.65450.