Safe-Haven Demand Keeps the Gold Price High
The gold (XAU) price remained near 2,030 on Thursday, largely unchanged from yesterday. Overall, the strong US dollar and higher Treasury yields still pressure XAU/USD.
Yesterday's strong US employment figures have further weakened the chance of an interest rate reduction this spring. Federal Reserve (Fed) officials also countered speculation about future rate cuts. Susan Collins, Boston Fed President, remarked that the current policy is suitably positioned, indicating that easing the monetary policy might be considered later in the year. 'The reality on the ground is that the US economy continues to be fairly firm, and that means that the Fed has very little latitude at this stage to start cutting rates,' stated Bart Melek, the head of commodity strategies at T.D. Securities. He added that 'for gold to rally, we have to start seeing evidence that the economy indeed is slowing down in a material way and that inflation is trending lower on a sustained basis.' Market sentiment has adjusted, now estimating the probability of a rate cut in March at under 20%, down from the 60% likelihood expected at the year's start. Moreover, ongoing geopolitical conflicts in the Middle East haven't substantially boosted XAU/USD.
Today, XAU/USD slightly declined during the early European trading session. While there will be no significant data releases today, tensions in the Middle East continue escalating: Israel launched strikes on areas in Rafah, a southern border city, after Prime Minister Benjamin Netanyahu declined a truce proposal from Hamas. 'Spot gold is biased to test support at $2,030 per ounce, with a good chance of breaking below this level and falling towards $2,018,' said Reuters analyst Wang Tao.
EUR/USD Recovers Slightly, but the US Dollar Remains Strong
The euro (EUR) gained 0.05% on Thursday, rising for the third consecutive day despite strong US macro data.
Yesterday's US Jobless Claims report once again pointed to a resilient US labor market, reinforcing the expectations that the Federal Reserve (Fed) may not rush to cut interest rates this spring. As a result, the US Dollar Index (DXY) continues to move near multi-month highs, while the euro recovers only slowly. 'If the dollar is going to weaken, we're going to need to see some attenuation of the robustness in the US data and some improvement in the data in Europe and China,' said Thierry Wizman, a global FX and interest rates strategist at Macquarie.
Meanwhile, expectations for an imminent rate cut by the European Central Bank (ECB) have also weakened. Pierre Wunsch, chief of the Belgian central bank, said there wasn't enough evidence for the regulator to start easing its monetary policy. Overall, monetary policy expectations on both sides of the Atlantic are more or less balanced as traders expect roughly the same amount of interest rate cuts in 2024 by both the ECB and the Fed. Thus, the fundamental pressure on EUR/USD is mixed, ensuring sideways trading.
EUR/USD was declining slightly in the Asian and early European trading sessions. Today, the formal macroeconomic calendar is rather uneventful, so volatility will probably remain low. Still, some traders may prefer to close their positions before the weekend, resulting in sharp movements. Technically, EUR/USD will probably continue to remain under bearish pressure as long as the price remains below the important 1.08000 level.
Today's Canadian Employment Report May Define the CAD Trend
The Canadian dollar (CAD) gained 0.06% on Thursday as the price of crude oil, Canada's major export item, surged by more than 3% on the Israel ceasefire rejection.
USD/CAD has been in an uptrend since the end of 2023, when the market started to scale back on its expectations for an early rate cut by the Federal Reserve (Fed). At the same time, the market doesn't expect the Bank of Canada (BOC) to be particularly dovish, either. Fundamentally, the divergence between US and Canadian monetary policies favors the Canadian dollar. That is because investors expect more interest rate cuts from the Fed than from the BOC. According to the interest rate swap market data, traders currently price in more than 115 basis points (bps) worth of rate cuts by the Fed and just under 80 bps of cuts by the BOC in 2024. Indeed, the protocols from the recent BOC meeting confirmed that policymakers were concerned about cutting borrowing costs too soon amid persistent inflation.
USD/CAD was essentially unchanged during the Asian and early European trading sessions. Today, the main event for CAD traders is the release of the monthly employment statistics at 1:30 p.m. UTC. The data release usually affects the market significantly. The report includes the latest nonfarm employment figures and unemployment rate—one of the key metrics the regulator uses to decide on changes in monetary policy. If employment rises faster than expected and the unemployment rate drops, the short-term bearish trend in USD/CAD may continue, bringing the pair down towards the critical 1.34000 level. Worse-than-expected results may lead to a sharp upward correction in USD/CAD, possibly taking the pair above the important 1.35000 level.