Strong dollar sends oil and gold lower; AUD declines on expected Chinese weakness

• China increased gold holdings for a ninth straight month in July
• Oil unfazed as Ukraine sea attack Russian oil tanker didn’t lead to a major disruption
• Dollar supported amidst bond supply concerns; 10-year Treasury yield rises 3.8bps to 4.074%

Oil

Crude prices are lower following a surge in the US dollar and as Saudi Arabia anticipates a bumpy road for the crude demand.  The Saudis are raising prices across most of Asia and Europe, with the Arab light crude only being boosted by 30 cents, which was less than the 50-cent rise expected by traders. The initial rally from news that a Russian oil tanker was damaged  only provided a brief rally on Sunday night.  Unless we see a meaningful disruption to crude supplies, prices will remain 

Also dragging oil prices down is the rising expectations that the US will see a recession by the end of 2024.  A Bloomberg investor poll showed two-thirds of 410 respondents expect a recession by the end of next year and 20% see one by the end of this year. 

Gold

Gold prices are struggling here on a strong dollar and as global bond yields rise and after an early round of Fed speak are still supporting the case for one more hike by the Fed. Wall Street is playing close attention to fixed income at the start of the trading week, which saw the bond market selloff cool at the end of last week after a mixed nonfarm payrolls report. If Treasury yields rally above last week’s high, that could trigger some technical buying and that could be very negative for gold prices. 

For many traders, this week is all about inflation data and any hot surprises could prove to be short-term bearish for gold.  As earnings season wraps up, stocks have mostly posted better-than-expected results (excluding Apple) and that has hurt the gold’s safe-haven appeal.  At some point over the next few weeks, if the stock market rally can’t recapture the summer highs, a decent pullback could help trigger a big move back into gold. 

AUD/USD and NZD/USD

The chart above shows that the correlation between Aussie-dollar and kiwi-dollar remains intact, but that the Australian currency might be having a tentative breakout.  If AUD/USD can rally above the 0.6600, upside momentum could target the 0.6725 region.  The Australian dollar is slightly lower given the surge in the US dollar and on expectations China could see trade data confirm the economy is struggling.

With the RBNZ likely done with any rate decisions for the next year, the New Zealand dollar seems like it will follow the path of global risk appetite.  Choppy range trading might remain in place for NZD/USD, which could see the 0.6000 to 0.6250 trading zone hold until the end of summer.

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