• Gold price posts modest gains around $2,005 despite the upbeat US labor data.
• US Nonfarm Payrolls (NFP) rose by 199K in November vs. 150K prior, Unemployment Rate declined to 3.7% from 3.9%.
• Both the Chinese Consumer Price Index (CPI) and Producer Price Index (PPI) came in worse than expected.
• Traders await the US Consumer Price Index (CPI) data on Tuesday ahead of the FOMC meeting.

Gold price (XAU/USD) recovers its recent losses during the early Asian trading hours on Monday. The unexpectedly upbeat US labor market boosts the US Treasury yields climbing and diminishes investors’ appetite for the yellow metal. However, the yellow metal attracts some buyers as it finds support near the two-week low of $1,995. Gold price currently trades near $2,005, up 0.14% on the day.

On Friday, the highly-anticipated US Nonfarm Payrolls (NFP) rose by 199K in November from the previous reading of 150K. Additionally, the Unemployment Rate declined to 3.7% from 3.9% in the previous reading. Average Hourly Earnings held steady at 4.0%, matching market expectations.

Finally, the preliminary University of Michigan Consumer Sentiment Index for December came in at 69.4 versus 61.3 prior. In response to the data, the US Dollar Index (DXY) rose to 104.25 and the US Treasury yields edged higher, with the 10-year yield climbing from 4.15% to 4.28%.

The Fed will announce the interest rate decision on Wednesday, its last meeting of the year. The markets anticipate no change in rates for its December meeting and think the dot plot will come down. Nonetheless, the market lowered its expectations for the first-rate cuts from March to May after stronger employment data

The firmer US Dollar (USD) and the concern about China’s deflation create a headwind for the gold price. On Saturday, the National Bureau of Statistics of China revealed that the nation’s Consumer Price Index (CPI) dropped 0.5% YoY in November from a 0.2% decline in October, worse than the market expectation of 0.2%. The Producer Price Index (PPI) declined 3.0% YoY in November from a 2.6% decline in October, below the market consensus of a 2.8% decline in the reported period.

Looking ahead, market players will monitor the US Consumer Price Index (CPI) on Tuesday. The spotlight will be the Federal Open Market Committee (FOMC) meeting, held on Tuesday and Wednesday. Traders will take cues from this event and find trading opportunities around the gold prices.

China’s inflation, as measured by the Consumer Price Index (CPI), fell 0.5% YoY in November from a 0.2% decline in October. The market consensus was for a decrease of 0.2%. 

On a monthly basis, Chinese CPI inflation dropped 0.5% MoM in November versus a 0.1% decline seen in October and a fall of 0.1% estimated.

China’s Producer Price Index (PPI) dropped 3.0% YoY in November, as against a 2.6% decline in October. The data came in weaker than the market expectations for a 2.8% decline in the reported period.

Market reaction

At the time of writing, AUD/USD has shrugged off the downbeat Chinese data releases, holding lower ground near 0.6578, unchanged on the day.

• AUD/USD loses ground near 0.6572 on the stronger US Dollar.
• US Nonfarm Payrolls (NFP) for November rose by 199K vs. 150,000 prior, above expectations.
• The downbeat Chinese CPI and PPI data weigh on the Australian Dollar.
• Investors await the RBA’s Bullock speech and US CPI data on Tuesday.

The AUD/USD pair edges lower below the 0.6600 barrier during the early Asian session on Monday. The upbeat US Nonfarm Payrolls data lift the US Treasury bond yields and the US Dollar (USD). The pair currently trades around 0.6572, down 0.09% on the day.

Data from the US Bureau of Labor Statistics (BLS) reported on Friday that the US Nonfarm Payrolls (NFP) for November rose by 199,000 from October's increase of 150,000 and came in above the market expectation of 180,000. Meanwhile, the Unemployment Rate declined to 3.7% from 3.9% in the same period. Average Hourly Earnings remained steady at 4.0%, in line with the market expectations. Finally, the preliminary University of Michigan Consumer Survey for December arrived at 69.4 from 61.3 in the previous reading, the second-highest reading this year.

The job market continues to be resilient after a year of recession worries. Futures market pricing suggests that the Fed will end its rate-hiking cycle and start cutting rates next year. However, the market lowered its expectations for the first-rate cuts after the employment data from March to May. The Fed will hold its two-day policy meeting,  starting on Tuesday. Investors will take cues about how officials view the economy.

On the Aussie front, the Australian Bureau of Statistics revealed last week that the nation’s trade surplus narrowed to 7,129M in October from 6,184 in the previous reading, below the market estimation of 7,500M. However, the concern about deflation in China and the weaker than expected Consumer Price Index (CPI) and Producer Price Index (PPI) exert some selling pressure on the China-proxy Australian Dollar (AUD).

Market players will keep an eye on the Reserve Bank of Australia (RBA) Governor Bullock's speech on Tuesday and the US CPI data due on Tuesday. The attention will shift to the two-day policy Fed meeting on Tuesday and Wednesday. This event could trigger volatility in the market and give a clear direction to the AUD/USD pair.