NEW YORK (Dow Jones)--Copper futures snapped a two-day rally Thursday to finish lower as a stronger dollar and caution ahead of Friday's U.S. employment data dominated traders' attention.
The most actively traded contract, for December delivery, fell 4.40 cents, or 1.1%, to $4.1605 a pound on the Comex division of the New York Mercantile Exchange.
The front-month contract, for September delivery, ended 4.45 cents lower, or 1.1%, at $4.1425 a pound.
A stronger dollar pressured demand for dollar-denominated copper futures among investors using foreign currencies. The contracts appear more expensive to these buyers when the dollar rallies.
The ICE Dollar Index, which tracks the dollar against a basket of international currencies, was recently at 74.465, up from 74.137 late Wednesday in New York.
Copper futures struggled to shake off the downbeat tone set by unfavorable foreign-exchange flows as traders were also cautious ahead of U.S. non-farm payrolls data due Friday. The median forecast sees the U.S. economy adding 80,000 jobs in August, while the unemployment rate is expected to remain unchanged at 9.1%.
Copper traders consider the jobs data an indicator of economic health, with weaker data signaling a likely decline in copper demand.
These concerns were shared across the Atlantic, as copper traded on the London Metal Exchange also finished lower on the day. Copper for three-months delivery closed the afternoon open outcry session at $9,144 a metric ton, down $130 or 1.4% from the previous p.m. close.
Earlier in the day, the Institute for Supply Management reported its manufacturing purchasing managers index eased to 50.6 in August, from 50.9 in July. The news surprised market participants as the median forecast saw the PMI falling to 49.0. A reading below 50 indicates a contraction in manufacturing activity.
Copper futures pared losses on the stronger-than-expected data as copper is widely used in manufacturing everything from cell phones and laptops to cars and refrigerators.
"You're not getting an influx of bullish sentiment, you're getting dribs and drabs," said Scott Meyers, senior trading analyst with Pioneer Futures.
Elsewhere, China's official purchasing managers' index rose to 50.9 in August, from 50.7 in July, according to the China Federation of Logistics and Purchasing, which issues the data with the National Bureau of Statistics.
"But adjusting it for seasonality, we believe that the reading was poor. August manufacturing activity in China is always higher than July activity," said Walter de Wet, head of commodity strategy with Standard Bank. He added that the increase was the smallest in more than five years.
However, not all market participants are seeing a gloomy future for copper prices.
"While we cannot ignore the impact of broader economic concerns, we believe the story for year end will be more about constrained supplies. Both copper and aluminium look set to [be] underpinned by tight physical markets as we head into year end," traders at RBC Capital Markets said in a note to clients.
Copper settlements (ranges include electronic and pit trading):
Sep $4.1425; down 4.45 cents; Range $4.1195-$4.1800
Dec $4.1605; down 4.40 cents; Range $4.1265-$4.2015