Date
24 June 2017
Federal Reserve chief Janet Yellen’s remarks that the US job market is entering the strongest period in nearly a decade boosted rate hike expectations and sent the dollar higher. Photo: Reuters
Federal Reserve chief Janet Yellen’s remarks that the US job market is entering the strongest period in nearly a decade boosted rate hike expectations and sent the dollar higher. Photo: Reuters

Rate hike expectations lift dollar, hit gold prices

Gold and foreign exchange markets both revolve around a major trading theme these days — expectations of a faster pace of US rate hikes next year.

Janet Yellen’s upbeat remarks on the job market have intensified market expectations for US interest rates to go up quickly.

Despite the terrorist attacks in Germany and Turkey, safe haven-driven demand for gold failed to prop up the yellow metal.

SPDR Gold Trust, the world’s largest gold ETF, saw its gold holding drop 1.06 percent to 828.1 metric tons. Its gold hoard has dropped 12 percent since November.

Gold prices have stayed below the 10-day moving average, which is now at US$1,150 per ounce, over the past two months.

Chartists point to US$1,103-1,120 as the key support zone.

The dollar moved closer to a 14-year peak after rallying against a basket of currencies on Tuesday.

Bank of Japan kept monetary policy on hold but raised its growth outlook on the back of improving demand from emerging Asia and an uptick in the manufacturing industry.

As the dollar strength prevails, the yen, though rather oversold, is expected to go further down to test support at around 120.

Sterling tumbled to a one-month low of 1.2353 against the dollar on Monday, extending the recent downtrend, as Brexit uncertainties continue to plague the currency.

Half of British employers believe the UK will be less attractive as an investment target in the next five years, according to a survey.

Resistance levels will come in at 1.28 and 1.30 while 1.23 and 1.208 are key support for the sterling.

The Reserve Bank of Australia left the official cash rate steady at a record low of 1.5 percent for a fourth month, saying it remains relatively optimistic about the economic growth outlook despite contraction in the third quarter.

The central bank’s meeting statement shows it’s trying to strike a balance between the benefits of a loose monetary policy and potential risks from a rapid rise in household borrowing.

Interbank rates futures indicate a slim chance of a rate cut in the next meeting, to be held on Feb. 7, 2017.

Technical indicators point to 0.75 and 0.763 as the key resistance levels. On the support side, 0.7145 and 0.70 are key levels to watch.

This article appeared in the Hong Kong Economic Journal on Dec. 21

Translation by Julie Zhu

[Chinese version 中文版]

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RT/RA

Sales director, Emperor Capital Group Limited; HKEJ columnist

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