Rising U.S. Dollar Hits Commodities Across the Board

Copper joined a lost list of commodities taking a hit due to rising U.S. Treasury yields and a stronger U.S. Dollar. On Wednesday, prices fell to their lowest level in over two weeks as the Greenback advanced on prospects of higher U.S. interest rates and growth in China’s manufacturing sector slowed in February.

On Wednesday, May Comex High Grade Copper futures settled at $3.1325, down $0.0540 or -1.69%.

Besides settling lower at New York’s Comex, benchmark copper on the London Metal Exchange fell 1.3 percent to its lowest level since February 13. Prices in Shanghai also slid lower.

Besides, the stronger U.S. Dollar, which helped drive down foreign demand for dollar-denominated copper, prices also tumbled in reaction to Chinese data which came in weaker than expected.

Growth in China’s manufacturing sector in February slowed more than expected to the weakest in over 1 ½ years as Lunar New Year holidays disrupted business activity and tougher pollution rules curtailed factory output. Essentially, when manufacturers are not as optimistic as before, that tends to weigh on demand expectations for metals and other commodities in general.

In other news, Chile produced slightly less copper in January that it did in December, the government reported on Wednesday.

Gold

Gold prices traded steadily on Wednesday, with pressure from a stronger U.S. Dollar being offset by safe haven buying due to the late session sell-off in equity markets.

Although the trend is down, the market could continue to be supported by speculators betting on further selling in the stock market. Expectations of higher inflation is generally supportive for gold because it is considered a safe store of value when price pressures rise. However, raising interest rates to push down inflation makes non-yielding gold a less-attractive investment.

We could see a sideways trade until investors aggressively pick a side.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures tumbled on Wednesday after crude and gasoline inventories in the United States rose unexpectedly. A stronger U.S. Dollar and a late session sell-off in U.S. equity markets also weighed on prices.

According to the U.S. Energy Information Administration (EIA), U.S. crude inventories rose by 3 million barrels last week, versus analyst expectations for a build of 2.1 million barrels. Gasoline stocks also rose by 2.5 million barrels against expectations for 190,000-barrel drop. Distillate stockpiles, which include diesel and heating oil, fell by 1 million barrels, versus expectations for a 709,000-barrel drop.