Gold Surges on the Back of Dovish Fed Comments
On Tuesday, gold (XAU) rose towards 2,050, reaching its highest point in almost seven months. The increase happened primarily due to a significant drop in the US dollar following dovish comments from Federal Reserve (Fed) officials.
The Federal Reserve (Fed) Governor Christopher Waller noted that the existing monetary policy is sufficiently restrictive, hinting at a potential rate cut in the upcoming months. Chicago Fed President Austan Goolsbee also acknowledged progress in tackling inflation. The market now prices in a 44.7% chance that the Fed will begin to ease monetary policy in March 2024 and a 72.8% probability of a rate cut in May. It seems that the Fed sentiment is becoming increasingly dovish. However, XAU/USD may fall sharply if U.S. inflation reports show higher-than-expected numbers. In the short term, the gold market is excessively bullish, looking overextended. Thus, gold is highly sensitive to any negative news, which might have a more disproportional bearish effect on the XAU/USD price than positive data.
XAU/USD rose sharply during the Asian trading hours but pulled back during the early European session. Today, traders should focus on the U.S. GDP Growth Rate report at 1:30 p.m. UTC. Lower-than-expected figures will probably push XAU/USD towards 2,052. However, the bullish trend might pause if the numbers exceed expectations.
"Spot gold may extend gains into a range of $2,059–$2,069 per ounce, driven by a powerful wave 3," said Reuters analyst Wang Tao.
The Bullish Trend in AUD/USD Pauses but Remains Intact
The Australian dollar (AUD) gained 0.64% on Tuesday, as the US dollar was weakening on fuelling expectations that the Federal Reserve (Fed) has finished hiking interest rates.
AUD is a risk-sensitive currency. Therefore, AUD/USD tends to rise when the market expects the end of monetary policy tightening and turns optimistic on global growth prospects. Indeed, the pair has risen by almost 6% over the past month and is trading near a four-month high. Moreover, Reserve Bank of Australia (RBS (LON:NWG)) Governor Michele Bullock highlighted the growing influence of domestic demand on inflation, necessitating a response through increasing interest rates. Currently, markets are pricing in about a 50% chance of the central bank increasing the base rate next year. However, the bullish trend in AUD/USD has paused due to bulls closing their long positions ahead of a strong resistance near 0.66800 and a faster-than-expected slowing of domestic inflation.
AUD/USD fell during the Asian and European trading sessions as the latest Consumer Price Index (CPI) indicated a slowdown in inflation. CPI numbers were lower than expected in October as goods prices fell, and core inflation also declined. The data increases the chances of the RBA leaving the rates unchanged at next week's meeting. Today, traders should monitor the U.S. GDP Growth Rate report at 1:30 p.m. UTC. If the figures are higher than expected, AUD/USD will likely decline towards 0.66000. However, the upward trend could persist if numbers come out below the forecast.