Gold Confirms Bull Flag, Attempts to Reclaim $2,000 Mark
Gold Capitalizes on Global Risk Aversion
Gold is building on the previous upswing early Thursday, capitalizing on broad risk-aversion, as Middle East tensions grab attention once again. XAU/USD price is paying little heed to the recent upbeat momentum in the US Dollar alongside the US Treasury bond yields.
XAUUSD Daily Chart
Factors Influencing the Gold Market
A typical risk-off market environment was witnessed in the US last session after Wall Stocks tanked on a disappointing US tech earnings report from Google parent Alphabet Inc. The tech giant tumbled nearly 10% after it reported downbeat cloud services revenue, shrugging off strong results from Meta Platforms Inc.
The AUD/USD Pair Experiences Sharp Decline
The AUD/USD pair is extending losses towards 0.6250 during Thursday’s Asian trading hours. The pair has fallen below the 0.6300 mark due to heightened risk-off sentiment and a stronger US Dollar. Speeches from RBA Governor Michele Bullock have done little to assuage Aussie buyers, with the focus now shifting towards the upcoming US Q3 GDP report.
AUDUSD Daily Chart
Factors Contributing to AUD/USD Decline
The Australian Dollar initially experienced an uptick following local financial data but was later swept up in a downward trend due to a robust US Dollar and deteriorating market sentiment. The Monthly Consumer Price Index (CPI) accelerated to 5.6% YoY in September, up from 5.2% in August, exceeding market expectations of 5.4%. This marked the second consecutive acceleration. The anticipation of tighter monetary policy has significantly increased post-data, with analysts predicting a rate hike at the November 7th meeting from 4.10% to 4.35%.
Bullock Speech: Uncertainty Surrounds November 2023 Interest Rate Rise
Market Volatility Following Testimony from Reserve Bank Governor
The potential for an interest rate rise in November 2023 has caused significant market volatility. This comes after Senate testimony from Reserve Bank Governor, Michele Bullock, and an unexpected increase in inflation data. As a result, market expectations for a November rate hike have been fluctuating drastically.
Inflation Data and Predictions
Governor Bullock stated that the third quarter’s inflation figures largely align with the bank’s predictions. However, it is yet to be determined whether an adjustment to its inflation forecasts would prompt a rate hike. Market predictions for a November rate rise have seen substantial variation, oscillating from a 60% likelihood to less than 40%, and are currently standing at an even 50/50.
Senate Economics Committee Meeting
During a meeting with the Senate Economics Committee, Bullock was questioned on the latest Consumer Price Index from the Bureau of Statistics. While she acknowledged that the numbers were slightly above their August monetary policy statement forecast, she indicated they were in line with their expectations.
Impact on Market Predictions and Currency
Bullock’s noncommittal stance led traders to initially reduce their predictions of a November rate hike, which had surged from about 30% to over 60% following the release of the inflation data. This also caused a minor dip in the Australian dollar.
Although many market economists viewed the recent data as a significant upside surprise to the RBA’s inflation forecasts, Bullock noted that the bank has yet to reach a conclusion on the matter. She urged patience and stated that the RBA’s current standpoint would be revealed following its next rate decision on Melbourne Cup Day.
The Outcome of Next Month’s Meeting
Towards the end of Bullock’s testimony, market predictions swung back to around an even split, making the outcome of next month’s meeting uncertain. This shift may have been influenced by Bullock’s comment that they might need to raise interest rates again, a possibility they have not dismissed.
Implications for the Forex Market
Despite the initial rise, the Australian Dollar erased all gains even against the New Zealand Dollar. The AUD/NZD tested the September highs but reversed, indicating that the strength was short-lived. The AUD/USD also experienced a reversal, influenced by a rally of the US Dollar.
The dollar rose on Wednesday ahead of a crucial Thursday, which includes the release of the first estimate of US Q3 Gross Domestic Product, the Core Personal Consumption Expenditure Index, Jobless Claims, and Durable Goods Orders.
EUR/USD Struggles Near One-Week Low as Traders Await ECB Decision
Eurozone Currency Faces Downward Pressure
The EUR/USD pair continues to face downward pressure on Thursday, trading around the 1.0560 area, a one-week low as traders eagerly await the European Central Bank (ECB) rate decision. Rising bets for a pause in the ECB’s 14-month-old rate-hiking cycle undermine the shared currency.
EURUSD Daily Chart
Anticipated ECB Decision Impacts Currency Market
The ECB is expected to keep interest rates unchanged on Thursday, as inflation slows down and economic activity remains subdued. Discussions are expected to revolve around modifications to reserve requirements and the balance sheet. ECB President Christine Lagarde will likely maintain a hawkish tone, considering that inflation levels remain high and to appease the hawks within the Bank.
US Economic Data to Influence Currency Markets
Robust data could further strengthen the US Dollar, while negative surprises could trigger a correction. Housing data released in the US surpassed expectations on Wednesday. On Thursday, crucial data will be released, with a focus on Q3 Gross Domestic Product (including the Core Personal Consumption Expenditure Price Index). Additionally, Jobless Claims and Durable Goods Orders will be relevant.
Looking Ahead: Middle East Tensions and US Economic Data Releases
Looking ahead, Middle East tensions will help Gold price stay afloat. However, the US economic data releases could put the market’s focus back on the Fed’s path forward on interest rates. The European Central Bank (ECB) is set to bring a half to its tightening program on Thursday but President Christine Lagarde’s message will hold the key, impacting risk sentiment.