Gold Corrected Sharply on Friday After the Fed Officials' Comments
The gold (XAU) price dropped by 0.85% on Friday but still had a large weekly gain as the Federal Reserve (Fed) turned dovish and projected interest rate cuts in 2024.
The U.S. Purchasing Managers' Indices (PMIs) figures were stronger than expected, showing a rise in business activity in December. Because strong PMIs ease the fears of a recession and lower the chances for an imminent interest rate cut, they had a bearish impact on the price of gold. Furthermore, some bulls took profit ahead of the weekend, contributing to a drop in XAU/USD. However, the main bearish momentum came from the recent Fed officials' comments. On Friday, John Williams, New York Fed President, said that the U.S. central bank is still focused on whether its monetary policy is on the right path to continue bringing inflation back to the 2% target.
"If more Fed officials walk back Powell's FOMC comments before Christmas, then we could see a deeper correction in gold prices, but this will make the market tread a little more carefully," said Tai Wong, a New York-based independent metals trader.
Still, the overall fundamental pressure on XAU/USD remains bullish as investors continue to price in the first rate cut in March 2024. 'The gold market will continue to mirror what the expectations from the Fed are. If the U.S. economy does not improve early in 2024, then that's a very strong sign that gold will continue to push near an all-time high,' said Everett Millman, the chief market analyst at Gainesville Coins.
XAU/USD rose slightly during the Asian and early European trading sessions. Today, the formal macroeconomic calendar is rather light, and gold may continue to grow slowly without any major events. The short-term technical bias will remain bullish as long as gold continues to trade above an important intraday level of 2,029. Bulls are currently targeting 2,038 and 2,048.
"Spot gold may drop into a range of $2,001 to $2,010 per ounce due to the completion of a five-wave cycle from $1,972.78," said Reuter analyst Wang Tao.
The Australian Dollar Reached a 5-Month High Ahead of the RBA Minutes Release
Australian dollar (AUD) fluctuated between 0.66600 and 0.67300 in a rather volatile session. Still, AUD/USD finished the Friday essentially unchanged.
AUD/USD has been in a bullish trend since 7 December, gaining 2.9% over the past 7 trading sessions and reaching a fresh 5-month high. The rally was fuelled by a shift in the U.S. interest rate expectations, as the market cemented the view that slowing inflation means that the Fed will have to ease monetary policy in Q1 2024. The swap market indicates that traders are currently pricing in 150-basis-point (bps) rate cuts in the U.S. and a 50-bps cut in Australia by the end of 2024. Thus, the expected divergence between monetary policies puts upward pressure on AUD/USD as investors are pricing in fewer rate cuts in Australia than in the U.S.
AUD/USD was rising noticeably during the Asian and early European trading session. Today, the economic calendar is rather uneventful, so the pair may continue to grow, targeting 0.67300 and 0.67700. The short-term technical bias remains bullish as the pair moves above 0.66650. Tomorrow, traders should watch for the release of the Reserve Bank of Australia's (RBA) Monetary Policy Meeting Minutes at 12:30 a.m. UTC. This detailed record of the RBA's most recent meeting will provide in-depth insights into how the regulator decided to set interest rates. Thus, it might have a noticeable impact on the AUD/USD exchange rate.