Daily Market Analysis

Gold and Oil on the Ascent as Traders Eye Upcoming NFP

April 5, 2023

Gold and oil have been the star performers of the week so far, with both being on the ascent against the backdrop of a weakening USD. Gold has again taken another leap higher with the spot price settling comfortably above the US$2000 level while oil is managing to hold onto its OPEC-inspired gains. In the case of gold, its appearing to be an ‘asset for all seasons’ at the moment because not only is it still seeing buying flows as part of inflation-hedging, but it is also rallying during risk-on sessions as the USD slides lower.

But what is actually happening with the USD? The greenback has been facing some substantial headwinds in recent times, not just from a dovish turn from the FOMC but also from what appears to be a growing move by some major economies to settle trade matters in a currency other than the USD. As a result, the USD is losing some lustre of late and the likes of not only gold and oil but also the Euro and Sterling have been able to gain some solid upside momentum against the Dollar.

The Australian Dollar was in consolidation mode today after what has so far been quite a fruitful week for the currency. Rising commodity prices combined with a feeling that the RBA is not done with rate rises has seen the AUDUSD hold around the US$0.6750 as we await key US jobs data later in the week. While there was some relief on Tuesday in Australia that the RBA took a pause after 10 consecutive rate hikes, RBA Governor Lowe today reminded us that they are probably not at the terminal interest rate setting yet.

Elsewhere, the RBNZ showed it was marching to beat of its own drum by ramping up rates by 50bp, twice the amount that the market was expecting. This gave the kiwi dollar a leg up today with the currency climbing over half a cent (and was last seen trading around US$0.6350). The signal sent to markets today was that clearly the RBNZ is not messing about when it comes to the goal of tackling inflation, and the kiwi dollar reacted accordingly.

Across Asian bourses today we saw mixed performances after Wall Street ended its winning streak. I expect we could see a more cautious turn and perhaps some position tightening from markets over coming sessions as we head towards Friday’s jobs data (Non-Farm Payrolls) in the US. Right now the market is awaiting clues as to whether there is another 25bp of tightening to come from the Fed, and the state of the US labour market could have a big say in whether we will see another quarter point tightening from the Fed in the coming months.

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