Palladium price has pulled back following the US dollar’s bounceback ahead of the Fed interest rate decision. Even with the probable decline, the expected increase in retail car sales in China and the US will likely have the metal’s price find support at $1,923.29. Subsequently, it may be range-bound with $2.074.42 being a key resistance level to watch.
High inflation and the subsequent slowed global economic growth has more investors staying clear of the commodity class of assets. Indeed, assets ranging from grains to precious and industrial metals have been on a downtrend for several months now. However, a look at the palladium price chart shows that the metal may be one of the few commodities that will thrive in the tough environment.
Palladium is used in the catalytic converters of gasoline-fuelled automobiles to reduce emissions. Notably, the rise of car sales in the US and China is one of the bullish drivers expected to boost palladium price.
According to the China Passenger Car Association (CPCA), Tesla sold 78,906 cars in June, including 968 for export. In comparison, it sold 32,165 cars and exported 22,340. the association further forecasts that retail sales of passenger automobiles, including SUVs, multi-purpose vehicles, and sedans may rise by 17.8% in July from a year earlier.
Even with the expected increase in the demand for the palladium metal, the US dollar will likely continue to curb its price gains in the new week. Earlier on Monday, the dollar index hit a high of $106.93 after dropping to $106.15 on Friday. Indeed, the bounce back is largely the reason behind the recorded pullback in palladium price.
In the new week, investors are especially keen on the Fed interest rate decision scheduled for release on Wednesday. The central bank is keen on easing the inflation that is currently running above 9%. As such, there have been rising expectations that it will approve another interest rate hike of 75 basis points in its July meeting.
On the one hand, officials such as Governor Christopher Waller are concerned about such a super-sized hike. In contrast, Governor Michelle Bowman is of the opinion that as long as the economic data supports it, an increase of 75 basis points in July and at least 50 basis points in the subsequent meetings is appropriate.
Bets on aggressive interest rate hikes by the Fed have been the key bullish driver of the US dollar. Close to two weeks ago, the dollar index, which tracks the value of the greenback against a basket of six major currencies, hit a fresh 20 year high. Similar to other precious metals and the broader class of dollar-priced commodities, a strong US dollar will continue to curb palladium price. In the course of the week, the market will also be reacting to CB consumer confidence, US GDP, and PCE price index on Tuesday, Thursday, and Friday respectively.