GOLD LOWER AS DOLLAR STRENGTHENS
The Australian dollar fell by 0.20% after the Reserve Bank of Australia (RBA) released its minutes for their January meeting. In the minutes, the bank mapped carefully a steady rise in the base interest rates while being wary of high mortgage rates. The bank commissioners were happy that the economy was doing well, thanks to higher commodity prices and synchronized global growth. Still, the bank did not outline when they will start raising rates since wage growth and inflation have remained low.
The euro is lower against the dollar, but slightly higher against the yen and the pound. Today, the EUR/USD is likely to see some significant movements as traders digest the news of the new ECB vice president and as they look forward to Germany’s economic data. They will also focus on a meeting of EU finance ministers. Yesterday, Spain’s Finance Minister, De Guindos was appointed by consensus as a new ECB VP leaving way for Germany’s Finance Minister as a likely successor to Draghi.
Gold is down by almost a percentage point, partly because of a strong dollar. The dollar index is up by 0.22%. It is higher by 0.15%, 0.17%, 0.14%, and 0.18% against the euro, pound, Canadian dollar, and Japanese yen. Gold tends to go down when the dollar moves up because of its characteristics as a safe haven. The strength in the dollar is attributed to a higher inflation rate coupled with higher treasury yields and the rise in the VIX.
The pair crossed the 1.2400 level for the first time since Wednesday as traders waited for key data from the EU area. At the same time, the longer-term moving average crossed the shorter-term moving average. The pair is currently trading at an important support level of 1.2370. The pair could continue the downward pressure as it seeks to recover some of the losses it had last week.
Following the release of the RBA minutes, there are no major economic data expected from Australia this week. This means that the action from the US dollar will weigh on the performance of the Aussie. After the minutes were released, the pair fell to an important support level of 0.7890. There is a likelihood that the pair could continue moving lower as indicated by the triangular moving average below, with the next price target being 0.7960.
The stronger dollar has weighed down the price of gold. The XAUUSD pair has made an almost 50% Fibonacci Retracement from the highest point last week. It is now trading at $1341.20 which is also an important support level. Sustained dollar strength could get the pair down to $1334, which provides strong support.