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Asia Open | FX & Gold: "Risk on" currencies consolidate near recent highs while gold bounces as Central Banks are viewed as money printing machines ahead of FOMC

Market Analysis / 3 Min Read
Stephen Innes / 09 Jun 2020


Gold prices have recovered a good chunk of their post-US Payrolls dip, although arguably the turnaround in employment in May – while coinciding with figures that show foot traffic is gradually starting to recover at retail and recreational establishments – is not bullish for bullion. Investors were looking for the NFP data to confirm a textbook setup for anchoring gold’s bullish bias.

With zero chance of the Fed easing back on the policy pump, the June FOMC presents little threat to gold from a policy perspective. But with the board looking to experiment with YCC, it may take the edge of rising US yields if they focus on this mechanism which, on the margins, should be positive for gold – or at least allow gold to come up for air. However, if the Fed accepts higher yields, that could be detrimental for gold.

Gold recovered quickly from the NFP dip, highlighting the strength of underlying sentiment and the lie-in-wait interest to build positions. Still, the yellow metal is on a reasonably steady downtrend, most likely on the back of the great run in equity markets over the past few weeks which could see fast money continue to sell on rallies. But the global central bank money printing machines should ultimately lend support in the more medium term.

Currency markets 

"Risk on" currencies (AUD) are mostly consolidating near recent highs with little news of note to trigger much action to start the week.

Friday's particularly strong US employment data has likely helped support expectations for a sharp recovery. However, before the considerable NFP data surprise, most high-frequency prints showed that business is reviving in fits and starts globally as lockdown measures are easing, particularly around retail sectors.

Oil prices and commodity currencies remain near their recent highs, supported by the OPEC+ decision to extend production cuts. The agreement also put more emphasis on monitoring compliance production curbs, with those nations failing to meet their commitments obliged to make extra reductions from July to September to compensate, which should continue to resonate favorably with petrol currencies. 

The EURUSD continues to trade sideways ahead this week's FOMC meeting and there’s likely to be greater market interest in the assembly of EU finance ministers later this week to gauge how negotiations on the EU's recovery fund plan are progressing.

EUR-USD dipped in the wake of Friday's US employment report, suggesting that good economic news could be useful for both risk appetite and the USD. 

Also, the market euphoria after waiting years for the EU to loosen the purse strings and take some baby steps toward fiscal union seems to be ebbing as focus returns to economic data.

A bit of a bumpy start for the Ringgit: the MYR should look good on several fronts this week, the positive outcome from OPEC aside. Having the weekend to digest the RM35 economic plan designed to cover "Main Street’s" back, will be well received. With improving risk sentiment, equity and currency market volatility decreasing, investors’ hunt for yield will have them checking out catch-up trades across the region where the MYR could benefit in the context of improving sentiment across regional peers. 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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