Rise In USD Index To Hit Struggling Commodities
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Editorial, Market Moves, Market Watch
The enduring strength of the US dollar is the main cause of commodity weakening. Since the beginning of 2022, the USD index has increased by more than 4 per cent and reached its highest level since 2002
The significant decline in commodity prices over the past fortnight will bring much-needed relief from inflation. Compared to their most recent peak, oil prices are down 20 per cent, while copper and timber prices have decreased by 32 per cent and 60 per cent, respectively. Agricultural products including wheat, corn and soybean are also significantly lower. Also in the news, Ukraine and Russia agreed to a deal backed by the UN that will reopen the Black Sea for Ukrainian grain exports. Given that Ukraine is one of the biggest exporters of agricultural goods, this may increase the global food supply.
Since the US currency has been moving up in recent times, demand worries have gotten worse as commodities have been declining with little relief in sight. According to the recent trend, commodities are strongly influenced by the direction of the US dollar, and without a significant devaluation of the greenback, things would not get much better. All commodities had a sell-off in the past fortnight and the majority hit new lows. Amid the ongoing strength of the US dollar, gold fell to an 11-month low while silver to new lows for July 2020.
On fears about China’s virus containment and doubts about economic growth, industrial metals also fell, with copper hitting a low of November 2020. Additionally, there was pressure on crude oil, which tested at its lowest level since February 2022. The European Central Bank’s unexpected move to raise its policy rate by 50 bps after signalling a 25 bps increase, the ongoing turmoil in China’s real estate market and economic data that clearly indicated a downturn in most Western economies is less favourable for commodity prices.
"According to the recent trend, commodities are strongly influenced by the direction of the US dollar, and without a significant devaluation of the greenback, things would not get much better."
Among other developments, according to the World Steel Association (WSA), India’s crude steel production increased by over 6 per cent on a yearly basis to 10 million tonnes in June 2022. India is the only nation that saw a rise in its steel production during June, according to figures from the WSA. In a recent report by a global industry group, it was stated that the nation produced 9.4 million tonnes (MT) of crude steel during the same month last year. India is the second-largest producer of crude steel in the world after China which produced 90.7 MT in June 2022, a decrease of 3.3 per cent from its output of 93.9 MT in June 2021. The production in the United States dropped by 4.2 per cent to 6.9 MT last month. Russia is estimated to have produced 5 MT, down by 22.2 per cent over 6.4 MT a year ago.