Daily Market Analysis

Banking Sector Uncertainty Remains, Gold Within Sight of US$2k

March 24, 2023

We saw subdued trading conditions across Asia on Friday with traders taking a bit of a breather after what has been rollercoaster of a week on financial markets. Investors are having a tough time getting a bead on the level of surety on offer to the US banking system from US government officials. Comments offered by US Treasury Secretary on both Wednesday and Thursday seemed at odds with each other and this is creating uncertainty over what happens when if/when the next bank runs into financial troubles. And this uncertainty was reflected in the trading patterns across Asia today.

Gold is again within shouting distance of the US$2k level with the precious metal remaining in favour as an inflation hedge, with traders unconvinced that the Fed can tame rampant inflation while also juggling the need to address banking sector fragility. On the one hand, if the Fed is at or near the peak of the current rate hike cycle, this may alleviate further bond position losses (albeit unrealised) for regional banks. But on the other hand, is the Fed going to fall short of the terminal interest rate setting needed to hit its inflation goals? I am not sure if even the FOMC knows the answer to that question yet. During Asian trading hours spot gold was trading just above US$1995 per ounce.

In forex, the Aussie Dollar remains unloved with currencies such as the Euro and Sterling faring better against the greenback courtesy of their more hawkish interest rate outlooks. High inflation readings forced the hand of the BOE this week to raise rates with more hikes likely on the horizon. The AUDUSD rate spent Friday mired under the US$0.67 level with the AUD not getting the usual bump it receives from a healthy gold price. Sellers are waiting around the 0.6730 level which has been a key resistance level this week, and we may need to witness a significant risk-on trading session to see if the AUDUSD rate can surpass this resistance level.

The oil price has been driven by headlines this week, and the latest example was the dip in price following comments from the US Energy Secretary regarding the Strategic Petroleum Reserve (SPR). And while it was a supply-side headline which caused the latest price dip (during the Thursday US session), traders are awaiting signs of a demand-side recovery before buying oil with any conviction. As such, WTI oil is trading back under US$70 per barrel.

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