Gold rises as US dollar rally slows
Gold (XAU) rose 0.53% on Tuesday as Treasury and Treasury bond yields retreated.
Unexpectedly strong US employment and services sector data and hawkish comments from Federal Reserve (Fed) Chair Jerome Powell have decreased the likelihood of interest rate cuts. As a result, it continues to move near multi-month highs even after yesterday’s small pullback. In a recent interview, Powell echoed his earlier statement, suggesting that a rate cut in March is unlikely. He also mentioned that the central bank plans to proceed with rate cuts more gradually than the market predicts.
was essentially unchanged in the early Asian and European trading sessions. There is no major data release today, but speeches by Federal Reserve officials could shed light on future US monetary policy. If the speeches support Jerome Powell’s rather hawkish stance, the XAU/USD may fall towards 2,024. Otherwise, gold could strengthen. “Spot gold may retreat to $2,029 an ounce as it failed to break the resistance at $2,038,” said Reuters analyst Wang Tao.
EUR/USD rises above 1.07500, but bearish trend persists
The Euro (EUR) gained 0.12% on Tuesday as the US Dollar Index (DXY) corrected after a strong two-day rally.
Still, it continues to trade near multi-month lows as strong US macroeconomic data and hawkish comments from Federal Reserve (Fed) officials boost the US dollar. Loretta Mester, president of the Cleveland Fed, said she could not provide the exact timing of the rate cuts amid the current uncertainty about inflation. Thus, market expectations of an interest rate cut in May continue to decline. Investors are now pricing in just a 54% chance of a 25 basis point rate cut in May. At the same time, the probability of a rate cut in the eurozone is also decreasing. Boris Vujcic, Croatia’s central bank governor, told Reuters that the European Central Bank (ECB) does not need to rush to cut rates, arguing that the “breakeven” rate in Europe is higher than it used to be.
EUR/USD rose slightly in the Asian and European trading sessions. The macroeconomic calendar is passing without incident today, so the pair is likely to move within the established trend. However, upcoming speeches from Federal Reserve officials could shed some light on the future path of US interest rates and spur some volatility across all dollar pairs. Adriana Kugler and Michelle Bowman, members of the Federal Reserve Board of Governors, and Tom Barkin, president of the Richmond Federal Reserve, will deliver speeches at 4:00 pm, 7:00 pm and 5:30 pm UTC. If they give aggressive messages, the EUR/USD downtrend could resume, potentially taking the pair below the important 1.07000 level. Meanwhile, a dovish message may trigger a short-term rally towards 1.08000.
Australian dollar rises as RBA holds interest rates steady
Despite falling below 0.65000 against the US dollar, the Australian dollar (AUD) recovered and gained 0.63% on Tuesday.
As expected, the Reserve Bank of Australia (RBA) kept its base interest rate unchanged on Tuesday. However, the regulator said a further increase is possible as inflation remains too high. Australia’s cash rate has held steady at a 12-year high of 4.35% since November 2023.
“It totally makes sense for the RBA to maintain a hawkish bias, given the pushback against easing expectations we’ve seen lately from the Federal Reserve, the ECB and other major central banks,” said Charu Chanana, head of monetary strategy at Saxo Bank in Singapore.
According to data from the interest rate swap market, investors consider the RBA to be one of the least dovish central banks among the G7 countries. The market expects only about 50 basis points (bps) of rate cuts in 2024. Therefore, it may continue to rise, potentially targeting a 0.67000 zone.
AUD/USD rose slightly in the Asian and European trading sessions. Today the macroeconomic calendar is light, so the pair’s short-term uptrend may continue. However, traders should be cautious as upcoming speeches by Federal Reserve officials could provide more details on the path of US interest rates and spur some volatility in dollar pairs. Adriana Kugler and Michelle Bowman, members of the Federal Reserve Board of Governors, and Tom Barkin, president of the Richmond Federal Reserve, will deliver speeches at 4:00 pm, 7:00 pm and 5:30 pm UTC, respectively . Aggressive messages may resume the bearish trend in AUD/USD, potentially taking the pair below the important 0.65000 level. Otherwise, the pair could face a short-term rally towards 0.66000.