As gold rose last week, it more noticeably rose in AUD, breaching AUD90,000/kg for just the 3rd time in history.  We discuss current Aussie currency sentiment and the price actions of the AUD last week, and look at why the Aussie gold price is looking strong compared to other gold currency pairs at the moment and why this trend could continue.

Last week’s Aussie dollar whiplash

As Australia is a commodity country the Aussie dollar often moves upwards with gold prices, limiting the volatility in gold prices.  However, with increased volatility in currency markets, that link has recently not been as obvious.  Last week AUDUSD hit a 9 month high only to heavily drop over 1.5c in the coming days… and then partially recover. This was on the back of several announcements which whipsawed the Aussie.  Initially the Bank of Japan announcement of a continuation of ultraloose money policy sent the Aussie higher, only to be pushed back down as US Fed Vice Chair Lael Brainard said that the US central bank needs a ‘sufficiently restrictive’ policy for some time, shooting the Aussie lower against the resulting higher USD.  Then on Thursday the Australian unemployment data was released, sending the Aussie lower again with a loss of 14,600 jobs compared to market expectations of a 26,500 gain.  Finally, the Aussie went back up on Friday on improved sentiment and profit taking. So basically in summary risk on, risk off, risk off, risk on….(snip snap snip snap for US Office fans) and yet gold continued to rise last week….

If there is a continuation of risk aversion with the Aussie dollar seemingly bearing the brunt of this in volatility moves, and there is a continuation of gold strength in USD (as so many are predicting), the Aussie may see a continued decoupling for gold which overall will support Aussie gold.

Aussie gold compared to other gold

Both Aussie gold and Euro gold have been relatively flat compared to the gains/losses in Yen and USD.  Aussie and Euro have seen 16% and 13% movements in the last year and Yen and USD have seen 35% and 20% moves.   Unlike the Euro however in the last 6 months Aussie gold has seen all of this move, a 16% increase in just 6 months. If a decoupling continues, this trend is likely to continue as the Euro and Yen both strengthen due to USD weakness, and therefore strengthening gold, but the Aussie may tread water a little more with softer economic data already starting to become apparent.

Graphical user interface, chartDescription automatically generated

*Source Tradingview XAUAUD


*Source Tradingview XAUEUR


*Source Tradingview XAUJPY


*Source Tradingview XAUUSD


Interest rate decisions and CPI

The US’s next interest rate decision will be on February 1st, with most Fed Officials indicating to the market that there are still several interest rate increases to go, preferring by the look of things to overshoot on the high side than undershoot on the low side.  The so called ‘hard landing’ appears the more likely scenario. This compares to the next RBA interest rate decision on February 7th against weakening economic data with the Aussie suggesting the RBA does not seem as bullish to overshoot as their US equivalents.  Because of this we may see the bullish Aussie gold story (lower AUD, higher spot gold) improve over the next couple of months and as long as gold continues to strengthen in the perfect storm of recessionary fears, inflation and USD weakness, Aussie gold may see further upside with the all time top firmly in sight…..