U.S. Dollar Index Hits 7-Month High, Hindering Any Bounce For Metals

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Includes: BDD, BDG, BOM, BOS, CPER, CUPM, DBB, FOIL, FORX, HEVY, JJC, JJM, JJN, JJT, JJU, LD, LEDD, NINI, RJZ, UBM, UDN, USDU, UUP
by: MetalMiner

Original Post

By Raul de Frutos

Last Wednesday, the Federal Reserve said that a December interest rate increase is still on the table. On top of that on Friday, data showed an addition of 271,000 jobs were created in October, with the unemployment rate dropping to 5%, beating expectations.

The good news greatly increased chances for a December rate hike. As a result, bond yields surged and the dollar appreciated against all currencies. The dollar index made a bullish move and is now at a seven-month high, breaking above resistance levels. The move suggests a continuation of the dollar's bull market.

The US dollar Index hits a seven-month high. Source: MetalMiner analysis of @StockCharts.com data.

Dollar Up, Metals Down

A rising dollar is something we've covered in previous articles. One of the side effects of a strong dollar is lower commodity prices since commodities are priced in US dollars and thus are negatively correlated to dollar fluctuations.

Industrial metals are commodities and a strong dollar has a depressing effect on prices. In the next chart we can see the dollar index versus the Industrial Metals exchange-traded fund. Notice how the dollar started to rise in mid-October, making industrial metals fall to multi-year lows.

US dollar index (in green) vs. the Industrial Metals ETF (in blue). Source: MetalMiner analysis of @StockCharts.com data.

What This Means For Metal Buyers

On top of weak Chinese demand, we have a rising dollar. This is bad news for metal producers and good news for metal buyers. For metal prices, we expected, and we still expect, more downward movement ahead.

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