By Jim Williams
Copper surged to a three-week high after gaining 2.6 percent Tuesday, giving copper a nearly 4 percent gain on the year. The red metal opened for trading this morning at $2.22 per pound. This latest gain is being attributed to a weaker dollar and further optimism about demand out of China.
Weaker dollar supporting copper
The dollar fell after the release of disappointing news regarding U.S. housing data. According to data from the US Department of commerce, U.S. housing starts in March fell 8.8 percent to the lowest level since October 2015. Plus, the building permits data, which is often an indicator of upcoming housing demand, fell 7.7 percent. This number is worse than the market’s expectation of a 2.8 percent increase.
This release pushed the dollar lower and, in turn, supported copper prices. It also reinforces the views that the Federal Reserve may hold out on interest rate rises.
Optimism over demand from China
Another factor that’s supporting copper prices is optimism about demand from China. Better than expected Chinese economic data released last week helped push copper higher. Chinese exports, improved new home prices, and upbeat fixed asset investments supported copper last week, resulting in the biggest weekly gain of the past six weeks. This sentiment spilled over into this week and buoyed Tuesday’s modest gain.
“The data supports our view that we will have a modest pickup in activity this year,” Caroline Bain, commodities economist at Capital Economics, told Reuters.
“We have to be a little bit cautious as the first quarter is always quite distorted in China because of the new year holiday, but the March data definitely showed a pick-up on most fronts.”
“Overall, everyone is still looking at China,” said analyst Helen Lau of Argonaut Securities in Hong Kong. “The March results are quite good you can see signs of economic stabilization.”
Lau continued, “The U.S. dollar weakness and oil price rebound were probably the two major drivers for yesterday’s move in copper prices. On the demand side, we think it will be sustainable through second quarter.”
Tagged with tED