The USD has stabilized while bond yields moderately eased ahead of the FOMC minutes (due for release Wednesday in the US), which has enabled the gold price to creep higher. The precious metal has been in recovery mode since the US inflation data last week effectively pushed back the timeline for expected rate cuts. Gold spent only a couple of sessions below the psychological $2k level last week, and a moderation in demand for the USD this week has given gold some further breathing room. During Asian market trading hours Wednesday, spot gold was trading around $2023, with resistance on the topside waiting at $2030 and $2041. Meanwhile, support awaits at $2013.
Whether or not gold can ascend further in the short term will likely depend on the FOMC meeting minutes, and importantly, the market interpretation of them. If there are signs that the Fed is reluctant to consider rate cuts in coming months, this could pressure the gold price while supporting the greenback. Conversely, if the FOMC minutes provide clues that rate cuts could be imminent, gold could be a winner in that scenario. But with US macro data having a history so far in 2024 of tending to beat to the upside, the Fed will likely stick to its cautious and data-dependant mantra regarding the rate outlook.
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In FX, the AUDUSD rate made a brief move higher when markets learned that the RBA considered a rate hike in February, before deciding to hold the benchmark interest rate steady at 4.35%. However, the AUDUSD rate could not sustain the move given the general move lower and risk assets, and the rate headed back to the 0.6550 area. With the DXY (Dollar Index) consolidating around the 104 level and above, other currencies are finding it difficult to make advances against the greenback in light of the expected delay in rate cuts from the Fed.
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The PBOC surprised markets by cutting the 5-year LPR (Loan Prime Rate) by 25 bps on Tuesday, which was a bigger cut than many had expected. The 5-year LPR is a key benchmark mortgage rate, and this move is designed to conjure up some much-needed demand on the consumer front and to address the woes of the property sector. While this move does signal intent from the PBOC, the indifferent reaction by risk-assets and Chinese equities suggests that financial markets require more convincing that the Chinese economy is ready to make a rebound.
Looking ahead, it is not only the FOMC minutes but also the upcoming earnings from tech giant Nvidia which could set the tone for risk appetite. The stock has been racing higher over the past year, and high valuations mean that much is expected on the earnings front. Though any failure to ‘wow’ markets this time around could raise some questions about current valuations for not only Nvidia but the tech sector as a whole. We don’t need to wait long to see if the company can again ‘deliver the goods’ on the earnings front.
