US Fed Turns Hawkish, US Dollar Surges, Pressuring Aluminum Futures [SMM Aluminum Morning Brief Dec 19]

Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,930 yuan/mt, peaked at 19,950 yuan/mt, hit a low of 19,880 yuan/mt, and closed at 19,945 yuan/mt, up 20 yuan/mt or 0.10% from the previous day. On Wednesday, LME aluminum opened at $2,544/mt, reached a high of $2,549/mt, touched a low of $2,526/mt, and settled at $2,531/mt, down $6/mt or 0.24%.

Summary: Macro front, the US Fed announced a 25-basis-point interest rate cut to a range of 4.25%-4.50%, marking the third consecutive cut, in line with expectations. The latest dot plot indicates policymakers expect two rate cuts in 2025, compared to September's forecast for four cuts next year. Following the Fed's decision and its cautious tone on future rate cuts, the US dollar index surged over 1% to a two-year high, weighing on the non-ferrous metals market. Fundamentals side, the overall supply side saw relatively small changes; demand side, affected by the off-season, the cancellation of export tax rebates, and regional environmental protection-driven production restrictions, downstream producers' operating rates continued to decline. Overall, macro factors were impacted by the Fed's hawkish remarks, while fundamentals face risks from the off-season and aluminum ingot inventory buildup. Market sentiment turned pessimistic, and aluminum prices are expected to fluctuate downward in the short term.