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CFD Markets News and Forecasts — 14-04-2024
- AUD/USD stages a modest recovery from a two-month low touched on Friday.
- The uptick seems unaffected by the Iranian attack on Israel over the weekend.
- Reduced Fed rate cut bets favor the USD bulls and should cap gains for the pair.
The AUSD/USD pair attracts some buyers on the first day of a new week and recovers a part of Friday's losses to the 0.6455 area, or its lowest level since February 14. Spot prices, meanwhile, react little to the latest geopolitical developments and trade around the 0.6470-0.6475 region during the Asian session, though any meaningful appreciating move still seems elusive.
Iran launched explosive drones and missiles at Israel late on Saturday in retaliation for a suspected Israeli attack on its consulate in Syria earlier this month, raising the risk of a further escalation of conflicts in the Middle East. The markets, however, remain relatively calm, which is evident from a generally positive tone around the US equity futures and turns out to be a key factor lending some support to the risk-sensitive Australian Dollar (AUD). The US Dollar (USD), on the other hand, stands tall near its highest level since early November amid hawkish Federal Reserve (Fed) expectations and caps the upside for the AUD/USD pair.
Data released from the US last week did little to ease concerns about still-sticky inflation and reinforced market expectations that the Fed will delay cutting interest rates this year. Adding to this, comments by a slew of influential FOMC members forced investors to push back their expectations for the first rate cut to September from June. The outlook keeps the US Treasury bond yields elevated near the YTD peak touched last week, which, along with persistent geopolitical tensions, should underpin the safe-haven Greenback. This, in turn, warrants some caution before confirming that the AUD/USD pair has bottomed out in the near term.
Moving ahead, the market focus now shifts to the US economic docket – featuring the release of monthly Retail Sales figures and the Empire State Manufacturing Index. This, along with Fedspeak and geopolitical developments, will drive the USD demand and provide some impetus to the AUD/USD pair ahead of the Chinese macro data dump during the Asian session on Tuesday. Investors this week will also take cues from Fed Chair Jerome Powell's appearance and the release of Australian employment details on Thursday.
Following late Saturday’s Iranian attack on Israel, analysts at Goldman Sachs explain the impact of the Middle East escalation on Oil price.
Key quotes
“Our commodities strategists do not expect substantial further upside to oil prices.”
“Hedge funds continued selling US Energy stocks for the 3rd straight week, and the sector has now been net sold in 5 of the last 6 weeks.”
"Any rise in oil prices on higher geopolitical risks may be dampened by oil producers deciding to hedge their price risks and sell forward their production."
"The potential Israeli response to Iran’s attack is highly uncertain and will likely determine the extent of threat to regional oil supply."
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- Gold price resumes uptrend on Middle East escalation after Iran attacked Israel over the weekend.
- US Dollar stays uninspired by geopolitical tensions, as risk sentiment remains in a sweeter spot.
- Gold price likely to stay supported ahead of top-tier US Retail Sales data.
Gold price is back in the green above $2,350 early Monday, having witnessed the long-due correction from record highs of $$2,432 on Friday.
Gold price opens higher, then retraces
Gold price saw a positive start to the week in early dealings, mainly lifted by the escalation in the conflict between Iran and Israel over the weekend. Investors scurried for safety in the traditional safe haven, as traders geared up for a new week following Iran’s drones attack on Israel late Saturday.
Gold price stays underpinned by markets’ fears that Iran’s unprecedented weekend strike on Israel could fuel rounds of retaliation. However, the UK, France and Egypt condemned Iran's action while Saudi Arabia called for restraint, offering some comfort to markets, as risk sentiment remains in a sweeter spot in early Asia.
The S&P 500 futures gain 0.30% on the day, reflecting the market optimism, which is capping the further upside in Gold price.
Looking ahead, if the Middle East conflict intensify, Gold price is likely to see an extension of the rebound toward $2,400. But a resurgent demand for the US Dollar on increased safe-haven flows and hawkish US Federal Reserve (Fed) expectations could act as a headwind to the Gold price upswing.
The focus will also be on the high-impact US Retail Sales data due later on Monday, with the monthly headline figure to increase by 0.3% in March, slower than February’s 0.6% rise.
The geopolitical tensions between Israel and Iran intensified over the weekend, as Iran launched drones toward Israel late Saturday, the Israeli military announced/
Citing the Islamic Revolutionary Guard Corps, Iran’s state-run media reported that dozens of drones had been fired in retaliation to the suspected Israeli attack on Iran’s consulate in Damascus on 1 April.
Iran successfully targeted Israel's most important military base in Negev using Kheibar missile, Iranian government’s newspaper reported.
Iranian Foreign Ministry, said in a statement, “Iran, if necessary, will not hesitate to take further defensive measures to safeguard its legitimate interests against any military aggressions and unlawful use of force.”
Israel’s military spokesman said the launches numbered more than 300 but 99% of them were intercepted.
“Iran fired 170 drones, more than 30 cruise missiles and more than 120 ballistic missiles. Of those, several ballistic missiles reached Israeli territory, causing minor damage to an air base,” he added.
Iran backed Yemen's Huthi rebels and Lebanon's Hezbollah joined the attack. Meanwhile, the UK Ministry of Defence confirmed late Saturday that British Royal Air Force jets in the Middle East “will intercept any airborne attacks within range of our existing missions, as required.”
In a nationwide address, Israeli Prime Minister Benjamin Netanyahu said, "in recent years, and especially in recent weeks, Israel has been preparing for a direct attack by Iran. Our defensive systems are deployed; we are ready for any defensive and offensive scenario. The State of Israel is strong. The IDF is strong. The public is strong."
However, Israeli President Isaac Herzog told CNN's Wolf Blitzer on Sunday, “Israel is not seeking war after Iran's attack and "balance is needed in this situation."
US President Joe Biden said on X that “I just met with my national security team for an update on Iran’s attacks against Israel. Our commitment to Israel’s security against threats from Iran and its proxies is ironclad.”
UN Secretary-General Antonio Guterres condemned Iran’s drone attacks targeting Israel as a “serious escalation” and called on all sides to show restraint to avoid a devastating regional conflagration.
The UN Security Council held an emergency meeting on April 14 over Iran’s unprecedented drone and missile attack on Israel. Further, the UK, France, and Egypt condemned Iran's actions, while Saudi Arabia called for restraint.
Market reaction
In the opening trades on Monday, traders seem to look through the anticipated escalation in the Middle East, as a threat of an imminent Iranian attack on Israel loomed in the past week.
FX majors are seeing a limited reaction to the widening Middle East geopolitical tensions while the S&P 500 futures, a key risk barometer, post moderate gains in early Asia.
However, Gold price attracts fresh haven demand, rising near 0.50% to nearly $2,370.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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