The gold price succumbed to another round of US dollar buying. The greenback has been going from strength to strength in recent weeks, with a combination of Fed rhetoric and solid data forcing the market to scale back future rate-cut expectations.
US treasury yields have been marching higher which has benefited the US dollar from a yield perspective. With the greenback attracting solid buying flows, gold looks vulnerable near-term unless something changes to take the wind out of the sails of the USD.
The obvious potential catalyst is the upcoming Core PCE Index. If we happen to see a softer reading on this key inflation gauge, it could offset some of the tough talk on rates that we have heard from Fed officials recently and take some steam out of the USD.
But that remains a big ‘if,’ given that the task of lowering inflation for the Fed has been challenging to say the least.
Oil price slips
The move higher in the oil price was halted, courtesy of comments from the deputy Russian PM which did not echo the bullish remarks we had heard from the Saudi camp. It appears there is a difference in tone amongst some OPEC+ members if this week’s comments by Saudi and Russian officials are anything to go by.
This adds another element of intrigue ahead of the upcoming OPEC+ meeting (on June 4), as any potential output cuts in coming months may not necessarily be across the board. In the meantime, the oil price is remaining pressured by the unresolved debt-ceiling drama in the US, with the price unable to capitalise on a string of better-looking US macro indicators this week.
Any near-term move higher in oil may be contingent on resolution from Washington regarding the debt ceiling. With a deal not yet delivered, the outside prospect of a US default is keeping risk-appetite on the sidelines.
Flat retail sales data hurt the AUD today, with the rate falling below the US$0.65 level. Retail sales for April came in flat, which was lower than the 0.3% forecast and the 0.4% prior reading. The AUDUSD rate is currently trying to cling to the US$0.65 handle, however this soft macro reading combined with a surging USD is making life difficult for the Aussie Dollar.
Elsewhere in FX, news that Germany is in a recession did not do the euro any favours. The currency had already been under pressure in recent weeks from the rising USD, and with the EU’s biggest economy in a recession, it does bring into question just how hawkish the ECB can afford to be with interest rates going forward.
As such, investors are reassessing the yield outlook between the US and the EU, particularly with Fed officials providing plenty of reminders lately that US rates may not have yet peaked.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
