Copper price extended its losses on Tuesday amid jitters over a hawkish Fed and the subsequent rebounding of the US dollar. Granted, it continues to find support in the better-than-expected Chinese manufacturing data.
Fundamentals
About two weeks ago, copper price rallied to a level last recorded in June 2022. The rallying was largely founded on optimism surrounding China’s reopening as well as tight supplies. In fact, Goldman Sachs forecasts that these factors will boost the red metal to a fresh record high of $11,000 per tonne in 2023. This is a significant increase from their previous prediction of $9,000 per tonne.
Notably, the aforementioned factors will likely continue to offer support to copper price in the short to medium term. In fact, the latest data from China signalled the expansion of manufacturing activities in the country.
The manufacturing PMI came in above the crucial level of 50 at 50.1 compared to the prior month’s 47.0 and the analysts’ forecast of 49.8. At the same time, COVID-19 woes yielded a decline in industrial profits by 4.0% YoY. Investors remain optimistic that the economy will record significant recovery in the coming months.
Even with the solid fundamentals, the market may be running ahead of itself. To begin with, the rest of the world, including major economies such as Europe and the US, may experience a mild recession at the least. Besides, the probability of the Fed maintaining an aggressive monetary policy may further impact copper price. In addition to the inverse correlation between the commodity’s price and value of the US dollar, an environment of high interest rates will likely be bearish for copper demand.
Copper price prediction
On Tuesday, COMEX copper futures were on a decline for the third session in a row. The decline had the asset hit a two-week low at 4.1455 earlier in the session. As at the time of writing, it was at 4.1645; down by 0.89%.
Even with the losses, copper price has continued to trade above the 25 and 50-day exponential moving averages (EMAs). This is a sign that the bulls remain in control of the copper market amid expectations that tight supplies and a surge in Chinese demand will continue to support the prices. Indeed, I am of the opinion that for as long as it remains above the crucial zone of 3.7500, the bulls will still be in control.
In the short term, I expect copper price to find support along the 25-day EMA at 4.0980. However, signs of a hawkish Fed may push it lower to the 50-day EMA at 3.9645. On the flip side, hints that the central bank may ease on its aggressive monetary policy may yield a rebound to 4.2785.
