The greenback has taken a turn lower ahead of the next markers for US inflation. Upcoming CPI and PPI data will be key in shaping expectations regarding how many further rate hikes are waiting in the pipeline from the Fed. A move lower in the headline CPI figure is forecast, but the movement in the core number will be the one to watch as this will likely carry the most weight when it comes to Fed decision making.
Recent comments from Fed officials have reminded markets that we are nearing the end of the rate hiking cycle, and this seems to have prompted some unwinding of long-USD positions. In response, other currencies have been quick to ‘make hay’ against the struggling US Dollar with Sterling, euro, AUD and Yen all on the march higher. The AUD has surged above the US$0.67 level with the currency also benefitting from the buoyant mood on global equity markets. Whether the Aussie Dollar can maintain a hold above this former resistance level depends on how the USD reacts once the inflation prints are out.
Oil has been going from strength to strength since the weaker NFP result last week, and now a fresh round of Dollar depreciation has resulted in the WTI contract being within shouting distance of the US$75 level. Additionally, the impact of the OPEC+ production cuts looks like it could be finally starting to manifest in the form of upward price pressures. But while oil has shown some immunity this week to the latest batch of disappointing Chinese data, if the world’s second largest economy continues to trend in the wrong direction this could be a significant hurdle for the oil price to overcome moving forward.
The downturn in the USD has opened a path higher for the gold price. The combination of a strong dollar and high US treasury yields has been pinning the gold price down over the course of the last month. However, a drop in the greenback has seen gold advance above the 100-day moving average to US$1938 and sitting just shy of the next resistance level at US$1945.
Overall, the decline in the USD so far this week has been instrumental in determining the direction for gold. And the same could be said in terms of the effect on oil, AUD, euro, sterling and yen. Which is why the US inflation gauges this week will be the key market driver. As such, financial assets will be taking their cues based on how the USD and US treasury yields react to the CPI and PPI data.