GOLD: Overbought Gold & Silver Correct, Fundamentals Supportive
Gold corrected on Tuesday as the double-digit rally this month drove profit taking and it could no longer ignore certain factors that would normally drive a pullback, including 2025 Fed easing is already priced in, there is talk that the US government shutdown could end this week and US-China trade tensions easing. Also it was in overbought territory and while yesterday’s 5.3% decline helps unwind some of that it remains overbought. The US dollar was also stronger (BBDXY +0.3%).
- Gold should continue to receive medium-term support from central bank and ETF buying as well as concern over large G7 government deficits, global uncertainty especially around tariffs and their impact which could include monetary easing. Lower rates benefit non-yield bearing gold.
- Traders are commenting that the lack of CFTC positioning data due to the US government shutdown is creating uncertainty around exposure size, according to Bloomberg.
- Gold trended lower through Tuesday to a low of $4082.03/oz before ending down 5.3% at $4125.22. It is slightly lower at the start of Wednesday’s trading at $4120.1, remaining below initial support at $4140.8, 15 October low, opening $4021.6, 20-day EMA.
- Silver followed gold declining 7.1% to $48.712 after an intraday trough of $47.891, below initial support at $49.089, 20-day EMA, opening $44.996, 50-day EMA. It is currently around $48.55. The white metal was also overbought and the correction marks the start of the unwinding of that condition.
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AUD: AUD/USD - Consolidates Around 0.6600, CFTC Data Shows AM's Cutting Shorts
The AUD/USD had a range Friday night of 0.6586-0.6612, Asia is trading around 0.6590. US stocks, just another day and another all-time high, nothing stops this train. The USD retracement extended though time will tell how long the reprieve lasts. The AUD/USD should still see dips supported for now with the first buy-zone back towards the 0.6550 area.
- Bloomberg - “New RBA Guidance Puts Aussie Banks on Track for 15% Profit Miss. Australian banks could miss fiscal 2026 consensus profit by up to 15%. given central bank guidance suggesting rates will be cut at least another three times. Swap rates are less of a tailwind, but wholesale funding headwinds are easing.”
- “Australia’s inflation likely remained near the top of the Reserve Bank’s target range in August. Further ahead, though, September and third-quarter readings could give it a compelling reason to cut rates at its November meeting.” - BBG
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6510(AUD356m), 0.6525(AUD705m), 0.6600(AUD546m). Upcoming Close Strikes : 0.6600(AUD703m Sept 24), 0.6650(AUD908m Sept 23), 0.6720(AUD791m Sept 24) - BBG
- CFTC Data last week shows Asset managers started to significantly reduce their shorts, -41095(Last -68333). The Leveraged community has pulled back their shorts to be almost flat, -1519(Last -5081).
- Data/Event: RBA Governor Michele Bullock delivers semi-annual testimony to a parliamentary panel in Canberra.
Fig 1: AUD CFTC Data
Source: MNI - Market News/Bloomberg Finance L.P
US TSYS: Yields Extend Retracement Higher
TYZ5 reopens at 112-26+, up 0-02+ from closing levels in today’s Asia-Pac session.
- Friday night the US 10-year yield had a range of 4.1139% - 4.1428%, closing around 4.127%.
- Treasury yields extended higher Friday night; led by the long-end causing the yield curve to steepen(2s10s +1.49 at 55.378, 5s30s +0.39 at 106.339).
- 10-Year Yields could not extend below 4.00% and have bounced as the Fed could not meet the markets very dovish expectations. The first buy-zone is now back towards the 4.20% area where I suspect demand should return initially. A sustained break through 4.00% is needed for the focus to then turn towards the 3.80% area.
- MNI BRIEF: Fed's Daly - Labor Market Has Softened Quite A Bit. San Francisco Fed President Mary Daly said Friday the labor market has softened quite a bit over the last year and that is why she supported a 25 basis point cut to interest rates this week.
- MNI BRIEF: Supreme Court Asks Fed's Cook to Respond to DOJ. Chief Justice John Roberts Friday refrained from acting on the request to act on President Donald Trump's request to remove Federal Reserve Governor Lisa Cook from her job, instead asking Cook for a response to the DOJ's filing by Sept. 25 at 4pm ET.
Fig 1: 10-Year US Yield Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
CNH: USD/CNH Sub key EMAs, US Lawmakers Visit China, LPRs Seen Steady
USD/CNH tracks near 7.1150 in early Monday dealings, which is slightly off end Friday levels from NY last week (closer to 7.1200). Broader USD sentiment continued to recovery on Friday, the BBDXY index up a further 0.22%, while the DXY gained 0.30%. Still, both indices were little changed for whole of last week. Spot USD/CNY finished up at 7.1182, while the CNY CFETS basket tracker rose a further 0.17% to 96.36 on Friday. This index remains within recent ranges.
- On the Xi-Trump call on Friday: "“The call was a very good one, we will be speaking again by phone, appreciate the TikTok approval, and both look forward to meeting at APEC!” Trump added." (via BBG). The deal on Tiktok (final steps etc) still reportedly has to be signed off on though.
- Also note that senior US lawmakers arrived in China on Sunday for talks with senior China government officials (the first such trip in six years). They met with China Premier Li Qiang. This trip is aimed at improving ties and strengthening the US-China relationship.
- For USD/CNH, we remain sub key resistance points, with the 20-day EMA near 7.1275, while the 50-day is holding just above 7.1505. Downside focus is likely to rest with recent lows at 7.0851.
- US-CH yield differentials stabilized post the Fed last week, the 2yr spread near +213bps, the 10yr spread at +233bps. China equity outperformance also cooled, likely tempering CNH gains.
- Today on the data front we have the 1yr and 5yr Loan prime rates. Not change is expected in either rate.
