The gold (XAU) price surged by more than 1.6% on Friday after China announced measures to stimulate its economy.
The relatively weak US dollar and China's plans to stabilize its property sector pushed XAU/USD higher on Friday. China is the world's major consumer of both precious and industrial metals, and if its economy continues to expand, the physical demand for gold might rise.
Furthermore, the market still expects the Federal Reserve (Fed) to deliver at least one rate cut this year.
Despite recent cautious comments from Fed officials that inflation remains a problem, investors continue to price in roughly 45 basis points (bps) worth of rate cuts in 2024. Precious metals don't yield any passive income, so declining interest rates tend to exert upward pressure on gold.
XAU/USD rose by another 1.2% during the Asian and early European sessions today following the death of Ebrahim Raisi, the president of Iran, which raised concerns about stability in the region. XAU/USD rose above the critical resistance level of 2,430 and set a new all-time high during the Asian session.
Today, traders should focus on news from Iran and any new developments in the Middle East as the region becomes a source of geopolitical uncertainty. Additionally, several Fed officials will be giving speeches today, potentially offering clues on future changes in US interest rates.
"Spot gold may test resistance at $2,447 per ounce. A break above could trigger a gain to $2,455," according to Reuters analyst Wang Tao.
The Euro Rebounds as the US Dollar Weakens
EUR/USD rose during the American trading session on Friday as the US dollar weakened and European Central Bank (ECB) member Isabel Schnabel highlighted the risks of premature interest rate cuts.
EUR/USD recovered from 1.08400 on Friday as market sentiment strengthened in anticipation of an interest rate cut by the Federal Reserve (Fed) in September, despite US central bank policymakers advocating for a prolonged restrictive monetary policy.
Previously, these comments had helped the US dollar recover slightly after a sharp decline triggered by the drop in US inflation in April. However, the currency has since weakened amid firm speculation that the Fed will begin reducing interest rates starting at the September meeting.
The correction in EUR/USD appears to be primarily driven by the recovery of the US dollar. However, the euro also remains appealing as ECB policymakers doubt about easing the monetary policy immediately after the widely anticipated rate cut in June.
ECB Board member Isabel Schnabel stated that the interest rate path beyond the rate cut in June is uncertain. She added that recent inflation data suggests the final phase of the disinflation process is the most challenging. She expressed caution about the upside risks to inflation that could result from premature rate cuts.
EUR/USD rose during the Asian and early European trading sessions. Today is Whit Monday, and major European exchanges will be closed, potentially resulting in thin market liquidity. There will be no major data releases today, so trading during the morning hours is expected to be relatively quiet.
However, several Fed officials are scheduled to give speeches at 12:45 p.m., 1:00 p.m., 2:00 p.m., and 11:00 p.m. UTC. These speeches could potentially trigger additional volatility.
The Australian Dollar Is Near A Five-Month High As Commodity Prices Surge Higher
The Australian dollar (AUD) gained 0.22% on Friday and almost reached a five-month high as the US Dollar Index (DXY) remained under bearish pressure.
The Reserve Bank of Australia (RBA) is the only major central bank currently expected to keep its monetary policy unchanged for 2024. Investors don't anticipate that the RBA will cut interest rates, but they project that the Federal Reserve (Fed) will deliver at least one rate cut, probably in September. This divergence in monetary policy expectations is exerting upward pressure on AUD/USD.
Also, Australia continues to benefit from high commodity prices, which may increase even after China announced plans to allocate 1 trillion yuan ($138 billion) and ease mortgage rules to stabilize its property market.
Analysts at Morgan Stanley are bullish on the Australian dollar, given the currency's close correlation with commodity prices, yield differentials, and market sentiment on the Chinese growth outlook. 'The government's fiscally expansionary stance should keep the economy growing at a robust pace into 2025.
The RBA does not appear likely to cut rates for the foreseeable future even as other central banks are likely to lower rates, moving front-end yields in AUD's favor,' they said in a note.
AUD/USD rose slightly during the Asian and early European trading sessions. Today, volatility is likely to be relatively low as the economic calendar features no major news, while Canadian and European banks will be closed due to holidays.
The RBA will release the minutes of its May policy meeting on Tuesday at 1:30 a.m. UTC. Traders will look for signs of how seriously the central bank considered a rate hike after strong Q1 inflation figures. The technical bias remains bullish as the Australian dollar moves above the important intraday level of 0.66750.