Copper price edged lower on Tuesday; reversing most of the gains recorded in the previous session. The previously steady support zone of $3.50 remains a major resistance level for the red metal amid a strong US dollar and concerns over Chinese demand.
After the week-long Chinese holiday, copper price rose by about 3% on Monday to an intraday high of $3.48 per pound. The rebound was founded on hopes that Chinese demand for the industrial metal will improve despite the economic headwinds that have emerged from the coronavirus pandemic.
Even so, investors are cautious on the status of copper imports to the second-largest economy in the world. In fact, this explains why copper price is back below the critical level of $3.50 after momentarily rebounding past it in the previous week.
To begin with, China’s building season has failed to yield the expected rebound in copper demand. In addition to its use in the electrical and industrial sectors, the red metal is also a crucial component in the construction sector.
COVID-19 lockdowns and a severe slump in the housing market has had a negative impact on the typical construction boom period in September and October. In fact, the top 100 real estate developers in the country recorded a decline of new-home sales by about 25% in September. China’s trade balance and inflation data that is set for release on Friday will avail further cues on the status of the Chinese economy and what that means for the nation’s copper demand.
Hawkish comments from the Fed are yet another reason behind copper’s persistent bearish trend. On Monday, the central bank’s Vice Chair, Lael Brainard insisted on the need for the aggressive policy tightening to continue much longer. She further indicated that the Fed will only ease on huge interest rate hikes once it’s “confidence that inflation comes down”.
An environment of high interest rates has been weighing on copper price in recent months. This comes as the US dollar remains above the critical resistance-turn-support zone of $100. As is the case with other dollar-priced assets, copper price is inversely correlated to the value of the greenback.