Copper Hits High for the Year as Dollar Weakens

By Carolina Curiel (ScrapMonster Author)

February 05, 2016 02:08:02 AM

Move follows positive China economic growth announcement

WSJ - Copper prices hit their highest level since the start of the year Thursday as a weaker dollar sparked investor demand for the industrial metal and drove bearish traders out of the market.

Copper futures for the most actively traded March contract rose 1.8% to settle at $2.132 a pound on the New York Mercantile Exchange, their highest price since Dec. 31. Since plumbing their lowest levels since early 2009 in mid-January, copper prices have rallied 9.8%.

Copper is a crucial industrial metal required in the manufacture of everything from cellphones to houses, and is nicknamed “Dr. Copper” as a leading indicator of global economic growth.

But copper’s gains in recent weeks have come amid financial market turmoil and weak economic signals, and a more likely driver of the increase has been a weakening U.S. dollar. Copper, denominated in dollars, gets cheaper as the U.S. currency weakens, driving stronger investment flows and commercial demand.

“A lot of this is dollar-related,” said Bill Baruch, senior market strategist at brokerage ii Trader in Chicago.

Financial speculators in copper such as hedge funds have been strongly bearish on the market since early November, amid signs of weakening economic growth around the world. Some of the market’s gains in recent days likely have been fueled by traders closing out short positions that profit from falling prices as the market has rallied against them.

On Wednesday and Thursday, investors dumped the dollar amid falling interest-rate expectations in the U.S. and continued nervousness about the global economy. The WSJ Dollar Index, which compares the dollar against a basket of 16 commonly traded currencies, fell to the lowest level since early November.

“Unbothered by the weak U.S. economic data and finding support from the depreciating U.S. dollar, metal prices are continuing to make noticeable gains,” Commerzbank AG said in a note.

Additionally, the head of China’s top economic planning agency said Wednesday the country’s economic growth target in 2016 remains in a range of 6.5% to 7%. China is the world’s biggest copper consumer, accounting for about 45% of global demand.

Courtesy : WSJ