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The Usual Suspects – China and the Dollar

By Jim Williams

After gaining for five consecutive trading weeks, copper started this week on a weaker note.

The red metal fell, mainly due to concerns over China's economy. July's weaker than expected industrial production data report, China's worst since January, finally caught up to market.

Copper prices moved down by 0.35 per cent in futures trade Monday. Likewise, the metal for delivery in November traded lower by 0.32 per cent.

Another reason for this week's drop in copper is the uncertainty of the U.S. dollar. The greenback bounced back slightly Monday after falling to an eight-week low against the Yen last week, mainly due to tension with North Korea. The absence of threats between the United States and North Korea over the weekend helped bring investors back to the U.S. dollar.

Those with an interest in copper prices know two things – the red metal is influenced by China and the U.S. dollar. Right now, the dollar is the deciding factor on which way copper heads.

The dollar was just under 94 as of the writing of this column. Click here for a live look at the index.

The dollar tends to have an inverse relationship with commodities in general, but specifically the price of copper. When the dollar is higher, copper tends to move lower. When the dollar dips, copper typically moves higher. In 2017, copper has bucked the trend and continued to climb despite the dollar.

“Unless the dollar index can put some distance between the price and critical support, commodities are likely to continue to remain near recent highs” points out frequent contributor Andrew Hecht of Seeking Alpha. “If and when the dollar decides to fall below 91.88, watch out. Fasten your seatbelts and prepare for lots of volatility. The reaction in commodities market could be dramatic on the upside as the raw materials sector tends to be the most volatile asset class.”

Things to Watch
Investors are looking to a report on U.S. retail sales due today. Plus, minutes from the July meeting of the policy-setting Federal Open Market Committee are on the docket for Wednesday. We will keep an eye on both reports and see what impact they have on copper.

 

 

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