Copper dips on strong dollar as traders await Fed rate decision

Copper declined on Tuesday, weighed down by a strong dollar and rising bets on an interest rate hike by the Federal Reserve that could dampen demand for industrial metals.

Benchmark three-month copper on the London Metal Exchange was down 0.9% at $13,605 in official open outcry activity. The contract’s 50-day moving average was providing support around the $13,570 mark.

“Overall, we expect base metals to remain supported on dips where individual supply stories are still constructive,” brokerage Sucden Financial said in a note.

“But the firmer dollar and high U.S. yields mean rallies are likely to need stronger macro confirmation, particularly into the Fed decision and key U.S. data later this week.”

The U.S. dollar steadied near a four-week high. A stronger greenback makes dollar-denominated metals more expensive for holders of other currencies, and can weigh on prices.

The market was awaiting the outcome of the Fed meeting on Wednesday, especially in light of relief to oil prices after a lull in fighting between the U.S. and Iran.

Expectations that the Fed will hold interest rates steady stand at 62%, while 38% of market participants expect at least a 25-basis-point hike, up from 16% a week earlier, according to CME FedWatch.

Higher rates could weigh on demand for copper by dampening economic activity.

LME copper stocks remain tight, however, after falling to 268,775 tons, the lowest since March. The backwardation in the cash-to-three-month spread stood at $33 a ton after hitting $44.50, its highest since January, indicating tight near-term supply.

The LME complex was down across the board. Aluminium slipped 0.8% to $3,143 per ton, even as stocks in LME-registered warehouses fell further to 269,300, the lowest level seen this century.

Zinc shed 1% to $3,575, nickel eased 0.8% to $17,070, tin lost 1.4% to $53,600, and lead edged down 0.1% to $1,890.