The Reserve Bank of Australia has kept the interest rate steady at 3.6%, which is what many in the market expected. Geopolitical tensions have caused gold prices to dip slightly from their recent peak. Still, strong support for gold remains due to fears of a possible US government shutdown.

Euro Is Gaining

The EUR/USD currency pair is rising toward 1.1750 during European trading hours. This movement is supported by a weaker US dollar, especially with German inflation data coming up soon. The GBP/USD is holding steady near 1.3450 as the US dollar remains subdued. Traders are looking forward to upcoming US jobs data and discussions about the government shutdown for clues on market direction. The US Bureau of Labor Statistics will soon release a report on Job Openings, which is likely to show a small decline in openings for August. This comes amid concerns from the Federal Reserve regarding the labor market. Chair Jerome Powell described the Federal Reserve’s current situation as “challenging”, indicating a cautious stance in his recent speech.

Effect of US Dollar Weakness

The Reserve Bank of Australia’s decision to keep the interest rate at 3.6% was widely anticipated. This should help reduce short-term fluctuations for the Australian dollar. It also reflects the bank’s “wait and see” approach, especially as Q2 inflation slightly eased to 3.8%. Traders may want to consider options for a stable AUD, such as selling strangles, since there are no new catalysts from the central bank. The more significant issue affecting the market is the overall weakness of the US dollar, driven by the looming risk of a government shutdown and a more cautious Federal Reserve. We saw similar market reactions during the long shutdown in late 2018, prompting a flight to safety. This situation suggests it’s wise to hedge against or speculate on further dollar decline in the coming weeks. This dollar weakness is already pushing currency pairs like EUR/USD toward 1.1750 and keeping GBP/USD steady around 1.3450. With the recent US core inflation data for August dropping to 3.5%, the Fed has less reason to take an aggressive stance. Call options on the euro or pound could be a way to profit from ongoing dollar weakness with manageable risk. The upcoming US JOLTS Job Openings data will be a key focus, as markets expect a slight decline from July’s 8.9 million figure. A large drop in openings could solidify the Fed’s dovish stance and potentially lead to more dollar declines. Be ready for strong market reactions, as a surprise increase in openings might quickly reverse the trend. In this uncertain climate, gold is rising toward its record high near $2,500 per ounce, acting as a traditional safe-haven asset. The mix of geopolitical risks and possible US political gridlock bolsters its value. Using derivatives to gain long exposure to gold may offer a valuable hedge against ongoing market concerns and a potential shutdown. Create your live VT Markets account and start trading now.

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