Dollar kicks off 2021 on the backfoot, Gold shines
Low interest rates and an improving economic outlook following vaccines rollout has led to further short selling in the US Dollar, particularly against the Euro and Chinese Yuan.
China’s Renminbi strengthened 1% in early Monday trade, with USD/CNY crossing below 6.50 for the first time since June 2018. That has erased all Chinese currency losses since the US-China trade war kicked off officially in July 2018. The strength in the Chinese Renminbi came despite slowing manufacturing activity. The Caixin/Markit manufacturing PMI slipped 1.9 points in December to 53.0. However, activity in the world’s second-largest economy remains in expansionary mode, while developed economies continue to impose lockdowns to control the virus spread.
Another supporting source for the currency comes from China’s Foreign Exchange Trade System which announced a reduction in the US Dollar’s weighting in the currency basket to 18.79% from 21.59%, while increasing the Euro’s weighting to 18.15% from 17.40%. The absence of any intervention from the PBOC or state banks would suggest further gains in the upcoming weeks with a possible retest of the 2018 lows of 6.24.
Tuesday’s Georgia Senate runoff elections will be critical for the US Dollar as a Democrat win of the two Senate seats could potentially unleash a lot more stimulus which simply suggests more pain for the Greenback.
Gold is also starting the new year with a bang as the precious metal has surged more than 1.2% and hit a high of $1925. Multiple factors are likely to continue lending support for Gold in the upcoming months. The pandemic will not disappear in a matter of weeks with tougher lockdowns also expected as Covid cases continue to rise. Hence central banks will need to keep policy loose by expanding their balance sheets. And given we are starting 2021 with extraordinarily rich valuations in equity markets, Gold is a must-have asset in portfolios. I think it’s only a matter of time before we cross back above $2,000 and I won’t be surprised if new highs are recorded in the first quarter of 2021.
· Gold and silver start 2021 on a high
Its the first proper trading week of 2021 and gold (1.34%) and silver (2.95%) are starting the year on the front foot. Sentiment overnight has been mixed as the Nikkei 225 fell 0.68% after suggestions and reports that Japan may move into a state of emergency due to the rise in COVID-19 infections. However, Australias ASX rose 1.47% and China's Shanghai Composite also pushed 0.86% higher.
In terms of major news, we learned that a group of senators led by Republican Ted Cruz is pushing for a delay and a 10-day investigation into accusations of wrongdoing related to the election.
The market also received the December reading for the Chinese Caixin manufacturing PMI index. The reading slightly missed expectations of 54.8 to print at 53.0 but it was the 8th consecutive month of expansion. Australia's manufacturing PMI for December also narrowly missed the analyst consensus reading of 56 to print at 55.7.
In the UK, Prime Minister Boris Johnson said that the UK may need to come to terms with the fact that tougher restrictions may need to be in place to deal with the mounting coronavirus cases. This comes in the week that the Oxford/AstraZeneca vaccine is being released to the most vulnerable people in the nation.
Sticking with vaccines, the US is said to be considering giving some people half the dose of Moderna’s COVID-19 vaccine. The vaccine is delivered in two stages but this move may be considered to make to rollout smoother and more efficient.
Ahead to today's OPEC meeting, there have been the usual comments. This time, OPEC Secretary-General Barkindo stated OPEC sees plenty of downside risks for oil markets in the first half of 2021.
Lastly, the meteoric rise in Bitcoin continued over the weekend. The crypto major it 34,810 a new all-time high. ETH/USD also followed suit jumping 62% in the last 3 days.
Looking ahead to the rest of the session highlights include manufacturing PMI numbers from the UK, Germany, Canada, Italy and France, the aforementioned OPEC meeting and comments from Fed's Bostic, Mester and Evans. On a side note, it is also the extradition heading for Julian Assange in London.
· Gold extends gains to fresh highs since early November, what's next?
The gold train marches on after a solid December month, as buyers are pushing the upside momentum further after a bit of a pause in holiday thin trading last week.
The upside was capped by the $1,900 level as well as the 100-day moving average (red line) but both levels have since given way and that leaves room for further upside - at least from a technical perspective.
The early November highs around $1,960-65 will be eyed next for buyers.
So, what exactly is driving gold higher to start the new year?
Dollar weakness is one of the key drivers to the gains today but essentially, gold's fundamentals are not changed whatsoever since December trading.
Major central banks keeping a more easy policy stance, adding to negative yielding debt and the rise in bets for the reflation trade, just adds to tailwinds for gold.
Not to mention the January seasonal pattern, which has historically proven to be the best month for gold - seeing gains for seven consecutive years now.
For now, keep above $1,900 and the 100-day moving average and buyers will continue to keep the more bullish momentum as the new year gets underway.
Reference: FOREX LIVE, Kitco, FX Empire
Thai
Eng