Gold Reaches a 1-month High Ahead of the NFP Report
Gold stayed above 2,050 on Thursday. XAU/USD rose nearly 2% this week, driven by a weakening US dollar, Treasury yields, and prospects of US rate cuts this year.
Gold approached a 1-month high yesterday following the release of higher-than-expected US weekly jobless claims. The Labour Department reported that initial jobless claims rose to a seasonally adjusted 224,000 for the week ending 27 January. It's the largest increase in 2 months, suggesting the labour market is weakening and raising the possibility of a rate cut from the Federal Reserve (Fed). Still, the data indicated that US worker productivity in Q4 exceeded expectations.
At its last meeting, the Fed maintained interest rates unchanged but dismissed the possibility of rate cuts this spring. According to the CME Fed Watch tool, the market now foresees a 96% probability of the first rate cut in May. Despite a lingering 'bad hangover' from the Fed's monetary policy stance, gold is rising slightly due to the higher-than-expected US jobless claims numbers, noted Phillip Streible, a chief market strategist at Blue Line Futures. A report showing US lender New York Community Bancorp (NYSE:NYCB) is facing financial troubles also affected market sentiment. The reports reminded investors of a regional banking crisis in March 2023. Thus, the appeal of safe-haven assets like bullion increased.
XAU/USD was essentially unchanged in Asian and early European trading sessions. Today, traders should focus on the US Nonfarm Payroll (NFP) report at 1:30 p.m. UTC. The report usually causes high volatility in the Forex market. If average hourly earnings rise, unemployment drops, or the number of jobs created is higher than expected, XAU/USD may decline and possibly return to 2,032. However, any indications that the US labour market is weakening may invigorate XAU/USD bulls, driving the pair towards 2,090. 'Spot gold may retest resistance at 2,066 USD per ounce, probably after a shallow correction into the 2,042–2,047 USD range,' said Reuters analyst Wang Tao.
EUR/USD May Break Above 1.09000 if the NFP Report Disappoints the Market
The euro (EUR) gained 0.52% on Thursday following data that indicated persistent underlying price pressure in the eurozone.
Thursday's data revealed that inflation in the eurozone in January softened as anticipated, but the decrease in core price pressures was not as significant as projected. This data may prompt the European Central Bank (ECB) to adopt a more cautious approach to interest rate reductions. Therefore, market expectations of the interest rate cut by the ECB in April might be overly optimistic despite easing inflation in France and Germany. Another factor contributing to the strengthening of EUR/USD was higher-than-expected US jobless claims numbers. The US dollar also faced downward pressure due to improved risk appetite, as indicated by a global rebound in equity markets.
Today, EUR/USD rose slightly during the Asian and early European trading sessions. Market participants are now focusing on the upcoming US Nonfarm Payroll (NFP) report at 1:30 p.m. UTC to assess the labour market's state and adjust their expectations for the US interest rate path. Lower-than-expected figures will probably push EUR/USD towards 1.09100. However, EUR/USD may correct downwards if NFP figures are higher than expected.
Today's NFP Report Will Determine the AUD/USD Trend
Yesterday, the Australian dollar (AUD) dropped to the 0.65000 level on the back of soft inflation figures. Still, it recovered swiftly during the American trading session as US jobless claims figures were higher than expected.
AUD/USD has been trading in a relatively tight range of 0.65000–0.66200 for over 2 weeks. Investors have been struggling to figure out what might be the best big move in the pair. Interest rate expectations in Australia and the US have been changing sharply lately. There is a lot of uncertainty about when exactly the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA) might deliver their first rate cuts. The RBA is scheduled to hold its policy meeting on 6 February. The regulator will probably keep the rates at 4.35%, given the better-than-expected latest inflation report.
Similarly, investors expect the Fed to leave its base rate unchanged until May. Fundamentally, considering the long-term expectations, the market favours AUD over USD. According to the latest interest rate swap market data, investors price in 140 basis points (bps) worth of rate cuts from the Fed and only 60 bps worth of rate reductions from the RBA by the end of 2024.
AUD/USD was rising during the Asian and early European trading sessions. Today, all eyes will be on the US Nonfarm Payroll report at 1:30 p.m. UTC. This report is the most anticipated event, causing increased volatility in the market. Traders will specifically focus on monthly changes in average hourly earnings and the unemployment rate. If the report generally comes out better than expected, indicating a robust US labour market, AUD/USD will drop and may attempt to retest 0.65000. Disappointing data may prolong the bullish trend in AUD/USD, possibly driving the pair towards 0.66500.