Gold Is Trading Sideways as Traders Await More Clues on U.S. Monetary Policy Path
Gold (XAU) price dropped by 0.54% on Wednesday during a surprisingly quiet trading session.
Yesterday, the trading activity was rather muted as traders are anxiously waiting for several important macroeconomic reports from the U.S. later this week that may offer new clues on the Federal Reserve's (Fed) monetary policy. Even though the Consumer Confidence Index published by the Conference Board yesterday was substantially higher than expected, XAU/USD failed to drop below the pivotal 2,025 level. The market is still very much under the influence of the last Fed meeting, which indicated that the U.S. monetary policy would be eased in 2024. Indeed, traders are currently pricing in an 80% chance of an interest rate cut in March 2024. That is a very high probability for an event that is more than three months away. Remarkably, the probability is not declining even in the face of some Fed officials' recent relatively hawkish comments. On Tuesday, Raphael Bostic, Atlanta Fed President, said there was no current 'urgency' to reduce U.S. interest rates given the strength of the economy. Either way, the risk of a sudden correction in gold prices is rather large, especially if macroeconomic data continues to come out stronger than expected.
XAU/USD was relatively flat during the Asian and early European trading sessions. Today, the focus is on the U.S. GDP report and Jobless Claims figures due at 1:30 p.m. UTC. If the report indicates that the U.S. economy remains in good shape and is not slowing, investors might re-adjust their overly optimistic expectations for an early rate cut. As a result, XAU/USD would fall. Conversely, if the data is softer than expected, gold may rally towards 2,050. 'Gold prices should stabilize above $2,000 and mostly trade higher considering geopolitical risks in the market, including U.S. elections next year, which could prompt money managers to ramp up gold in their portfolio,' said Daniel Pavilonis, senior market strategist at RJO Futures. 'Spot gold looks neutral in a range of $2,027–$2,044 per ounce, and an escape could suggest a direction,' said Reuters analyst Wang Tao.
Australian Dollar Continues to Trade Near a Six-Month High as the RBA Looks Less Dovish Than the Fed
The Australian dollar (AUD) lost 0.47% on Wednesday as the US Dollar Index (DXY) moved higher despite falling Treasury yields.
AUD/USD has been in a well-defined bullish trend since mid-November. The divergence in monetary policy between Australia and the United States clearly favors the Aussie as traders expect more rate cuts from the Federal Reserve (Fed) than from the Reserve Bank of Australia (RBA). Indeed, according to the interest rate swaps market, investors currently price in as much as 150 basis points (bps) worth of rate cuts in the U.S. by the end of 2024 and only 80 bps of rate cuts in Australia over the same period. In addition, the falling U.S. dollar is exerting an upward pressure on the price of key commodities, which Australia exports and that, in turn, supports the AUD/USD exchange rate.
AUD/USD was rising slightly during the Asian and early European sessions. Today, the main focus is on the U.S. GDP report and Jobless Claims figures due to be released at 1:30 p.m. UTC. AUD/USD bulls would need the GDP report to come out weaker-than-expected and Unemployment claims to rise faster than the market anticipates. Alternatively, if the report comes out stronger than expected, AUD/USD may drop below the important 0.67000 level. The short-term technical bias remains bearish as the Australian dollar trades below 0.6760, the important intraday level.