Gold Declines Sharply Ahead of Yellen

Daily Analysis - 04/11/2015

Prices of Precious Metal Fall to Lowest Since Early October As Markets Prepare for Testimony


Commodity markets were mixed yesterday as precious metals prices declined sharply while crude oil futures posted strong gains, rallying over 4.00% on account of a strike at Petrobras and closure of an export terminal in Libya despite inventory gains.

New Zealand Unemployment Meets Expectations

New Zealand’s quarterly employment data released late yesterday saw the unemployment rate rise to 6.00%, in-line with the consensus estimates of economists and analysts. The quarterly employment change declined by -0.40%, below estimates of 0.40% and down from 0.10% in the prior reporting period. In a growing sign that the Reserve Bank of New Zealand will be forced to loosen monetary policy even further, the Global Dairy Trade Price Index experienced another sharp decline, falling -7.30%, after printing at -3.10% in the prior report. Weaker employment, inflation, and commodity prices will continue to weigh on the outlook, raising the specter of another interest rate cut before the end of the year and further accommodation in the first quarter of 2016. NZDUSD closed the session at 0.6663 and is likely to see further declines over the near-term.


Australian Retail Sales Rise

Retail sales in Australia increased 0.40%, matching estimates while pointing to a 0.90% quarterly gain in private consumption growth in a positive sign for the impact of monetary policy. The trade balance data released later showed a contraction in the deficit to AUD $2.317 billion in September, down from AUD $2.711 billion previously. The trade deficit declined on the back of a recovery in export earnings of nearly 3.40% in September, supported in large part by the lower exchange rate. Imports on the other hand, increased 1.70% for the month. On a quarterly basis, the Australian trade deficit stands at AUD $7.500 billion in the third quarter, down from AUD $10.600 billion in the second quarter. The trade deficit contraction is viewed as positive with the potential to push the GDP to 0.70% from -0.50%. AUDUSD posted a session high of 0.7220 before easing back to trade at 0.7200.


ECB’S Draghi Speaks

ECB President Mario Draghi is due to make his opening remarks at the ECB Forum in Frankfurt today at 09:00 GMT. Draghi's speech marks a continuation from yesterday, where he very lightly touched upon monetary policy while choosing to allocate most of his time towards discussing fiscal policy in the monetary union. The main talking points were that the ECB would re-examine the degree of monetary accommodation at the December meeting. Draghi did not comment further on the issue but noted that inflation should be balanced and that the ECB will meet its mandate for price stability while highlighting concerns of growth prospects from emerging economies. The mention of deposit rates and consideration of other measures during the speech saw the Euro reverse from earlier gains, with the common currency declining across the board as EURUSD closed the session losing 0.50% to trade at 1.0960.


ADP Payrolls and Yellen Testimony

The monthly private payroll numbers from ADP are due out today during the US trading session. Expectations are for a moderate 183,000 private sector jobs added to the economy for the month of October, down from 200,000 in the prior month. The ADP payrolls data is followed up by the US trade balance figure and finally, Federal Reserve Chairwoman Janet Yellen is set to testify to the Senate Banking Committee. The markets will be closely scrutinizing Ms. Yellen's testimony today in light of the recent hawkish tone from the Federal Reserve for a possible rate hike in December. The Senate Banking Committee will also get the rare chance to pick the Fed Chair’s brains ahead of a key policy making decision. No doubt, the markets will be closely watching this event. Gold prices posted a substantial loss yesterday, declining -1.40% while S&P 500 futures posted moderate gains of 0.40%.


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