Rise of US dollar against other currencies put downward pressure on commodity prices, say analysts
Commodity markets were dominated by downward pressure last week, as demand for the US dollar hiked amid concerns that the Fed may cut rates later than other central banks.
Interest rate decisions of central banks influenced commodity markets.
The Fed left its policy rate unchanged within expectations, leaving it at a 23-year high of 5.25% to 5.50%, while expectations for three rate cuts this year remained high.
Meanwhile, the Swiss National Bank (SNB) cut its policy rate to 1.50%, which came as a surprise for investors and caused the US dollar index to rise after the Fed decided to keep interest rates unchanged.
The rise of the US dollar against other currencies put downward pressure on commodity prices, analysts say.
Gold price hits historic high
The Bank of Japan’s (BoJ) first interest rate hike in 17 years negatively impacted precious metal prices, as the bank raised its short-term interest rates from minus 0.1% to a range of 0% to 0.1% last week.
Silver prices fell as US data continued to signal that the country’s economic activity remains strong, with the US Philadelphia Fed Manufacturing Index revealing that the sector continues to expand,as the index gained a positive value for the second consecutive month, although it fell to 3.2 in March.
The current US account deficit decreased by 15.7% last year to $818.8 billion.
The US Purchasing Managers’ Index (PMI) for the manufacturing industry rose 0.3 points month-on-month to 52.5 in March, hitting a 21-month, exceeding market expectations, and indicating that the manufacturing sector is expanding. As for the Services PMI in the US, the index fell 0.6 points month-on-month in March to 51.7.
Existing home sales in the US exceeded expectations in February, increasing by 9.5%, the highest increase this year.
Platinum and palladium prices fell due to the increasing demand for electric vehicles, as the demand for catalytic converters used in conventional vehicles decreased.
The ounce price of gold reached a new peak of $2,222.8 as the Fed maintained its forecast of three rate cuts by the end of the year.
In light of these developments, the ounce price of gold rose 0.4% last week, while silver fell 1.9%, platinum 4.4%, and palladium 8.5%.
Copper price fell from its 13-month high
Base metals were under selling pressure last week, as the copper price per pound, which reached its highest level since Feb. 2023 at $4.14, fell from its 13-month high and finished the week down 3%.
The price of aluminium per pound hiked by 1.6, while nickel, zinc, and lead all fell by 3.1%, 3%, and 4.8%, respectively.
The energy sector experienced price increases last week.
Last week, Brent crude oil prices rose due to geopolitical tensions and supply concerns as Ukraine’s attack on Russia’s oil refineries raised fears that fuel supplies to Asia and Europe would be disrupted.
Meanwhile, rising tensions in the Middle East continue to put upward pressure on prices, with concerns that the region’s ongoing conflicts will disrupt the oil supply.
Yemeni Prime Minister Ahmad Awad bin Mubarak announced the suspension of the UN roadmap, which was announced by Hans Grundberg, the UN special envoy for Yemen, to establish a cease-fire with the Iranian-backed Yemeni group Houthis, due to escalating tensions in the Red Sea.
The Houthis continue to target Israeli-linked vessels passing through the Red Sea.
The group announced that they had carried out an attack using a US-made unmanned aerial vehicle (UAV), and a few days later, US and UK forces conducted 10 attacks on the western city of Al Hudaydah in Yemen.
The projected decline in commercial crude oil stocks in the US strengthened the perception that demand remained strong, giving rise to Brent crude oil prices.
Contrary to expectations, the American Petroleum Institute announced that the US commercial crude oil stocks fell by 1.5 million barrels compared to the previous week. The market expected stocks to rise by 77,000 barrels.
US commercial crude oil inventories exceeded expectations and fell by about 2 million barrels last week. Markets expected stocks to decrease by 900,000 barrels.
Natural gas demand in the US increased as temperatures are expected to fall.
Given these changes, the barrel price of Brent crude oil hiked 0.2%, while natural gas traded on the New York Mercantile Exchange in British thermal units (MMBtu) rose 2.2%.
Agricultural group see mixed course, while cocoa reaches new high
Wheat and corn prices soared on news that the EU will tax grain imports from Russia and Belarus.
Meanwhile, news that Thailand planned to ban corn imports from neighboring countries that pollute the air by burning agricultural land, as well as the Buenos Aires Grain Exchange’s downgrade of Argentina’s corn production forecast from 56.5 million tons to 54 million tons for the 2023/24 season, pushed corn prices higher.
Considering this news, the price of wheat traded on the Chicago Mercantile Exchange rose 5.3%, corn 0.6%, whereas soybeans decreased 0.5%, and rice fell 2.7%.
Reduced rainfall in Brazil has raised concerns about coffee production.
Sugar prices fell due to increased production in Brazil, while the Brazilian real depreciation against the US dollar had a negative impact on sugar prices.
Concerns about cocoa supply in West Africa persist, as adverse weather conditions in the region and import restrictions imposed by European importers impacted cocoa prices.
Last year, harsh growing conditions and crop diseases in West Africa hampered cocoa production, driving prices higher.
The global deficit is expected to continue as current cocoa production is insufficient to meet demand.
Following the 2016 El Nino weather phenomenon, which caused drought and a sharp rise in cocoa prices, rates are again on the rise as a result of the current El Nino.
The price of cocoa peaked at $8,960 per ton, up 10.7% last week.
In light of these developments, the price of cotton on the Intercontinental Exchange fell 1.8%, sugar 0.7%, and coffee 1.2%.
Source: aa