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Uncertainty over the direction of currency movements could be the main factor holding investors back from the market, analysts said.
The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was at 97.39 as of 10.09am Shanghai time on Tuesday, compared with a low on July 19 of 96.75.
“Despite firmer US data recently, expectations remain that the Federal Open Market Committee (FOMC) will cut rates by 25 basis points next week,” Cherelle Murphy, senior analyst at ANZ, said in a morning note.
“Anxiety over the downside growth risks and disinflationary impact of the economic slowdown in both China and the [European Union] are outweighing current domestic strength and many believe the Fed will not deliver a policy surprise,” Murphy added.
This view was echoed by others in the market.
“The [dollar] will be on the back foot until the second day of the July FOMC meeting [on July 31]. The central bank is expected to cut rates by 25 basis points, but a deeper cut would put more downward pressure for the currency,” Alfonso Esparza, senior market analyst from online trading services provider Oanda, said in a morning note.
As a result, base metals prices across the SHFE complex were mixed amid the uncertainty.
Zinc was the biggest gainer relative to the other metals, with its most-traded September contract on the SHFE rising to 19,325 yuan ($2,808) as at 10.09am Shanghai time, up by 90 yuan per tonne, or 0.5%, from Monday’s closing price of 19,235 yuan per tonne.
“Strict environmental inspections continue to hamper Chinese [zinc] mine output this year. In the first five months of 2019, total Chinese mine output fell by 2.5% from last year,” Fastmarkets analyst Andy Farida said.
“Following an annual deficit of 507,000 tonnes in the whole of 2018, the global refined zinc market remains persistently tight this year. Over the first five months of 2019, the total market deficit has ballooned to 123,000 tonnes, considerably higher than a deficit of 103,000 tonnes in the same period of last year,” Farida added.
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