Australian Gold Leveraging The Dollar Bull; Domestic Currency Depreciates

  • May 21, 2019 AEST
  • Team Kalkine
Australian Gold Leveraging The Dollar Bull; Domestic Currency Depreciates

Gold prices plunged as the dollar gained further strength from the recent outlook of the United States Federal Reserve. The reiteration of previous remarks by the FOMC member and Vice-chair- Richard Clarida supported the dollar prices. The comments of the Vice Chair matched the earlier statement made by him on 9th April and 13th May 2019 and signified that the FED vice chair views are least affected by the recent re-escalation of the U.S-China trade war and tariff tiff.

The previous comments of the Vice Chair mentioned that the economy is at or near targeted inflation and employment goals, and any plan which targets the average inflation should be credible.

The Gold Spot prices slipped from the level of US$ 1279.01 (Day’s high on 20th May 2019) to the present low of US$1275.88 (as on 21st May 2019 AEST 7:38 PM).

The Fed Vice Chair mentioned that the Federal Reserve targeted 2% inflation, and the current non-accelerating inflation rate of unemployment is at or below the unemployment rate. And the Vice Chair reiterated the same last night despite the pessimism in the global market due to the bilateral disagreement between the two significant economies of the world.

Post considering the recent economic figures which provided impetus to dollar prices, the Fed Chair Jerome Powell mentioned that it would be premature to ascertain the impacts of U.S-China trade dispute and tariff war on the path of monetary policies.

The FED’s denial of the fact that trade war is moving with no positive outcome supported the dollar prices, and it gained further strength and exerted pressure on gold prices.

Dollar Index rose from the level of 97.88 (Day’s low on 20th May 2019) to the present high of 98.12 (as on 21st May 2019 AEST 7:38 PM).

Source: Thomson Reuters; DXY Daily Chart

The strengthening dollar further gained leverage over the cross-pairs in the international market. The US dollar extended its rally against the Australian dollar, and the cross-currency pair of AUD/USD dropped in Australia, which in turn, kept the gold prices high in Australia.

The AUD/USD dropped from the level of US$0.6934 (Day’s high on 20th May 2019) to the present low of US$0.6870 (as on 21st May AEST 7:38 PM).

Source: Thomson Reuters; AUD-USD Daily Chart

The strength in the US dollar prices against the Australian dollar depreciated the domestic currency of Australia, due to which gold spot denominated in the Australian dollar surged, and gold prices inched up in Australia.

Source: Thomson Reuters; AUD & XAU/AUD Daily Chart

The Australian Dollar denominated gold spot (XAU/AUD) surged from the level of A$1839.60 (Day’s low on 20th May 2019) to the present high of A$1857.58 (as on 21st May 2019 AEST 7:38 PM).

Source: Thomson Reuters; XAU/AUD Daily Chart

The daily chart of Australian dollar denominated gold spot is trading above the 7 and 20-days exponential moving averages (EMAs), which are at A$1855.09, and A$1841.16 respectively. The initially up-rally which started from the level of approx. A$1652.82 corrected more than 50% before resuming the original uptrend.


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