Gold breaks $1,500 on hope of more rate cuts | CMC Markets Daily Commentary
Following three central banks cutting policy rates at a larger-than-expected magnitude within a single day, the hope for more monetary easing and currency depreciation is now on the course of rising. When all nations tried to devaluate their currencies to make their exports and manufacturing more competitive, there is likely to be no clear winner because the currency market is on a relative basis and is a zero sum game.
An alternative asset class – gold, silver – outperformed the others as investors pump their capital into ‘physical money’ to hedge against their currency depreciation risks. Gold’s rally also reflected heightened uncertainty on trades and geopolitical tensions. If the current deadlock between Washington and Beijing spirals into a deeper trade and currency crisis, more capital flow into safe-havens will be down the road.
US equity indices made a ‘V’-shape rebound overnight, recovering as much as 2% losses seen in the early trading hours and closed flat. Hope for more Fed rate cuts helped to alleviate selloff temporarily, and a relatively stable Chinese yuan calmed investors down. The futures market is now pricing in 2-3 more rate cuts by the end of this year, with the next one likely happen in the September FOMC meeting.
Today’s China trade balance data is expected to deliver another month of decline in its exports and imports growth. According to Reuters forecast, China’s export in July is projected to be down 2% YoY, and imports down 8.3% YoY, weighing by trade tariffs and slower external demand. The actual figure is likely to bring some volatility to AUD and NZD pairs, which have experienced huge swings in the past 24 hours.
AUD/USD has mostly recovered from a deep dive yesterday due to a surprising 50bps RBNZ rate cut. Much worse-than-expected China trade balance data will exert selling pressure on the Aussie dollar, whereas a better figure will likely do the reverse.
In Singapore, the benchmark index STI opened 0.6% lower as investors fled away from the equity market ahead of the four-day National Day holiday break. Uncertainties over trades and weaker growth prospect shown in recent earnings results reined risk-taking activities.
Singapore’s largest telecommunications company SingTel reported a 35% decline in its 2Q earnings this morning, resulting in a 1.2% drop in its share price. SingTel’s 2Q revenue is largely flat from a year ago, but underlying profit is eroded by losses from Airtel and higher depreciation & amortisation costs. Recent weakness in AUD also weighed on its profit as a large part of SingTel’s business comes from the Australian market via Optus.
Gold – Cash
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