Copper price has continued to find support from central banks’ aggressive measures. In particular, Fed’s super-sized rate cut and PBoC’s stimulus package has boosted the red metal. Comex copper futures rallied to a fresh 10-week high of $4.55 per pound earlier on Wednesday before pulling back slightly.
As at the time of writing, it was trading at $4.50. Even so, investors remain keen on the upcoming data which will further impact copper price movements.
Chinese demand
Copper prices have continued to benefit from the People’s Bank of China (PBoC) stimulus package. In addition to being the second largest economy in the world, China is the leading importer of copper and other industrial metals. As such, investors are hopeful that the measures announced by Governor Pan Gongsheng on Tuesday will boost the country’s demand for the red metal.
China’s central bank announced its largest stimulus package since the COVID-19 pandemic as it strives to get the economy out of its deflationary funk and towards its growth target of 5%. Among the highlighted measures is lowering the reserve requirement ratio – the amount of cash that banks need to have in their reserves – by 50 basis points.
Besides, it will lower interest rates on existing mortgages by an average of 0.5%. It will also reduce the down-payment ratio for the purchase of second homes from 25% to 15%. These measures are in an effort to boost the recovery of the country’s real estate market, which has been struggling since peaking in 2021.
While the announced stimulus has boosted copper prices, some investors argue that there is need for more fiscal support to restore consumer confidence. In the ensuing sessions, copper price may have its upside curbed by this wait-and-see mood. Furthermore, investors will be eyeing the Chinese data set for release on Monday next week.
More specifically, the China manufacturing PMI will show the extent of its structural slowdown. Since October 2023, the figures have reflected a contraction, only coming in above 50 in March and April 2024. In August, it missed the experts’ forecast of 49.5 while dropping from the prior month’s 49.4 to 49.1. The sector’s continued contraction, which would mean a figure below 50, will likely weigh on copper prices.
Read more: Iron Ore’s Price Spikes On News Of China Stimulus Measures
Role of the US dollar
As is the case with most assets that are priced in US dollars, copper price tends to move inversely to the value of the greenback. In fact, the US dollar’s gains on Wednesday are one of the reasons behind copper trading in the red.
On the one hand, the recent super-sized rate cut by the Federal Reserve has curbed the US dollar’s upside while supporting copper price. This is founded on the fact that a decline in the value of the grenback makes the dollar-priced asset cheaper for buyers holding foreign currencies.
Besides, the enacted measures are set to stimulate economic growth in the country. This includes increased industrial activity, which will in turn boost the demand for copper. Interest rate cuts are also meant to make it cheaper for businesses to borrow funds thus encouraging investment in various projects, including construction and manufacturing.
While these factors have been bullish for copper, investors are still eyeing additional cues on the Fed’s tone and the overall health of the US economy.Data released on Tuesday showed that consumer confidence in September dropped the most in over three years. Jitters over the country’s labor market and business environment were largely behind the pessimism.
In the ensuing sessions, remarks by Jerome Powell on Thursday are set to impact the market. Besides, the Fed’s preferred gauge of inflation – the PCE price index – is scheduled for release on Friday.In the latest Fed meeting, the Chair indicated that upside risks of inflation have “diminished”.
Copper price analysis
Copper price peaked at $5.17 earlier this year and then suffered a harsh reversal to a low of $3.95 on August 8. This was a notable level since it was a few points below the 50% Fibonacci Retracement point.
Copper has now bounced back after last week’s Federal Reserve interest rate cut. It then rallied after China announced its stimulus measures.
It has bounced back above the key resistance point at $4.31, its highest point on August 27. Also, copper has jumped above the crucial point at $4.35, its highest level in January last year.
Copper has also jumped above the 50-day Exponential Moving Average (EMA). Oscillators like the Relative Strength Index (RSI) has moved above the overbought point at 70 while the MACD indicator has turned positive.
Therefore, the path of the least resistance for copper is bullish, with the next point to watch will be at $4.68, its highest level on June 5.
The risk, however, is that copper will retreat as investors assess the impact of China’s stimulus on the real demand.
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