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The Week Ahead: Gold Rallies Despite Rate Hikes

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USDJPY rallies over widening rate gap


The Japanese yen hit a 20-year low against the US dollar as traders buy into a hawkish Fed. Low yield currencies have been lagging behind as the US central bank ramps up monetary tightening.

As Japan’s core consumer inflation remains low by western standards, the Bank of Japan may still afford to remain dovish. Governor Kuroda has vowed to keep the policy ultra-loose. In fact, he is betting on a weak yen to support the export-reliant economy, even though higher import costs weigh on household and business confidence.

The widening interest rate gap would continue to fuel the rally towards 128.00. 121.50 is a fresh support.

AUDUSD bounces over inflation pressure


The Australian dollar consolidates gains as the RBA faces increasing pressure to intervene. Australia’s unemployment rate fell to a 13-year low in March. And record-high vacancies suggest more room on the downside.

A red-hot labor market would send wages higher and businesses may start to pass on rising costs, flaring up inflationary pressure. The Aussie’s solid performance shows that traders are wagering the first hike by the RBA in a decade will be this summer.

Externally, rising commodity prices would continue to provide tailwinds for the pair. 0.7350 is a fresh support and 0.7650 is a resistance from the recent high.

XAUUSD rises over flight to quality


Bullion edges higher as geopolitical uncertainty sees no sign of de-escalation. As Russia shifts its focus to east Ukraine, a protracted war would sustain demand for gold as a safe haven.

The precious metal has consolidated gains after an initial pop at the start of the invasion. This is a sign that the conflict is still a key driver of market pricing. So, investors are now bracing for a tug of war.

In the meantime, lockdowns in China put growth in the second-largest economy at risk, adding another layer of uncertainty to a turbulent time. Gold found buying interest near 1900 and is heading towards the recent high at 2070.

UKOIL jumps as sanctions take effect


Brent crude continues to rally over tightening global supply. The EU is reportedly moving toward banning Russian oil.

And the International Energy Agency estimates that the impact of sanctions may take full effect from May, with a loss of 3 million barrels per day. Buyer aversion compounds the supply bottleneck as major trading houses plan to cut their exposure to Russian crude.

Demand-wise, hopes of stimulus in China to tackle a severe Covid outbreak alleviate fears of a steep drop in consumption. The price is consolidating its gains above 98.00. The recent peak at 138.00 is the next resistance.

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