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The US currency weakened overnight followed dovish comments from the US Federal Reserve in which the central bank pledged to be “patient” with future interest rate increases. The dollar index, at 95.31 as at 10.48am Shanghai time, is down from 95.80 at a similar time on Wednesday.
“The [Federal Open Market Committee] took a dovish tilt at its January meeting. Removed from its statement was the reference to ‘further gradual increases’ in rates and instead it will be ‘patient’ in the future rate considerations given muted inflation and global development,” Jack Chambers, economist with ANZ Research, said in a morning note.
The comments were supportive to riskier assets and global markets benefitted from a generally more risk-friendly environment given the weaker US currency.
Providing further support to the base metals were the continued trade talks between the United States and China, currently taking place in the White House complex in Washington DC.
“The focus of the market was on the [Federal Reserve’s] comments and the progress of the China-US trade talks… the market seems to be finding support from the healthy progress [of the trade talks] after a delegation led by China’s vice premier Liu He arrived in Washington on January 30 for a new round of negotiations with US counterparts headed by US Treasure Secretary Steven Mnuchin and Trade Representative Robert Lighthizer,” China-based broker Citic Futures said in a morning note.
Negotiations will resume later today, when US President Donald Trump is expected to meet Liu.
As a result, the weak dollar combined with positivity stemming from ongoing US-China trade talks has buoyed base metals prices this morning, with copper in particular putting in a strong performance.
The most-traded March copper contract on the SHFE climbed to 48,170 yuan ($7,169) per tonne as at 10.47am Shanghai time, up by 470 yuan per tonne or 1% from Wednesday’s close.
The red metal also benefits from expectations of a tightening refined market.
“The International Copper Study Group estimates that the refined copper market was in a deficit of 545,000 tonnes in the first 10 months of 2018, including a deficit of 132,000 tonnes in October. The January-October 2018 deficit was mainly the result of a constrained growth in refined output (+1.2% year on year), due to an unexpectedly high number of smelter disruptions, especially at Vedanta’s Tuticorin smelter in India. The deficit was further underpinned by an acceleration in consumption growth (+2.8% year on year), most notably in China (+6.9%),” Fastmarkets analyst Boris Mikanikrezai said.
“The combined fall of around 100,000 tonnes in global exchange inventories in November-December 2018 suggests the refined copper market continued to tighten into the end of the year,” Mikanikrezai added.
Base metals prices
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