Gold, AUD/USD: Softer US dollar and bond yields provide window for upside

• The USD dollar index is facing its largest monthly decline since November 2022
• Gold has been a benefactor, pushing back above $2000
• AUD/USD is facing several key resistance levels following its recent bounce

A softer US dollar has helped AUD/USD and gold push towards key technical levels, suggesting the near-term price performance may determine their longer-term trajectory as we head towards 2024.

DXY on track for largest monthly decline in a year

One of the key features of markets in November has been the abrupt weakening of the US dollar index which has fallen over 3%, leaving it on track to record its largest decline since November last year. The DXY is also through its 200-day moving average, a potentially important development given the tendency to spend long periods above or below this level when it’s broken through previously.

Source: Refinitiv 

Gold staring down sellers above $2000

Combined with lower bond yields across the US curve, dollar weakness has contributed to a rebound in many liquid asset classes, especially those whose valuation is greatly influenced by relative yields and FX fluctuations, such as gold.

With the geopolitical backdrop providing an environment where tensons could escalate rapidly, it comes as no surprise to see pullbacks in gold have been shallow over the past month, seeing the price continually drifting back towards resistance above $2000.

While it has not had any success breaking cleanly through this level yet, with RSI continuing to trend higher, the 50-day moving average moving towards crossing the 200-day equivalent and the price continuing to attract buyers on uptrend support, you get the sense that we’re approaching a make-or-break moment for bullion when it comes to revisiting the highs struck earlier this year.

A clean break and close above $2008 would embolden bulls that further upside is likely, pointing to a potential push towards resistance located at $2048. Should resistance hold at $2008, a pullback towards $1985 would likely be the first port of call. Whichever way the price moves, a stop-loss order on the opposite side of $2008 would provide protection.

AUD/USD likely to be driven by offshore factors

Like the gold price, the Australian dollar has been a beneficiary of US dollar weakness, seeing AUD/USD hit the highest level since early August, testing its 200-day moving average in the process. While Wednesday’s Australian monthly inflation indicator could create volatility, you get the sense that if the Aussie is going to see further upside, it will likely come from offshore factors such as a continuation of the rebound in the Chinese yuan or Japanese yen, or another leg lower for USD.

Looking at the economic calendar, Thursday looms large with Chinese PMI surveys for November arriving before the release of core PCE inflation in the United States. If there are two known events that could greatly influence the AUD/USD, those are the events to mark in the calendar.

US core PCE, China PMIs the key events to watch

On the Chinese PMIs, traders will want clarification on whether the surprise weakness reported in October was an anomaly or start of a new trend. Obviously, a strong outcome would normally benefit AUD/USD given its widely regarded as a China proxy pair. For the US core PCE, a similar undershoot on market expectations to what witnessed for the US consumer price inflation (CPI) report earlier this month would only enhance the view that the Fed’s fight against inflation is nearing its conclusion, an outcome that may spark further US dollar selling given it suffered its largest decline in a year following the CPI report. Alternatively, a surprise reacceleration in underlying inflation pressures, especially in services costs less housing, could spark a decent USD retracement higher.

You can see AUD/USD faces some decent resistance levels near-term, not only testing the 200-day moving average but also sellers who are likely to be lurking from .6600 onwards. Beyond there, AUD/USD faces downtrend resistance dating back to April 2022, currently found around .6665. Should AUD/USD not be able push higher, a retest of former horizontal resistance at .6520 is probable.

-- Written by David Scutt

Follow David on Twitter @scutty