Turbulence Ahead: A Weaker US Dollar Might Help Commodities in the Second Quarter

For the first time in almost a year, the US dollar index is experiencing some turbulence.

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For the past two weeks the index is trading sideways. Still, the long-term trend is clearly up and we doubt this is a major top for the dollar. However, its sharp advance during 2014 certainly leaves the currency vulnerable to some profit-taking.

Dollar (in green) versus CRB Index (in blue) since 2013
Dollar (in green) versus CRB Index (in blue) since 2013. Source: MetalMiner.

Weakness in the dollar is giving support to commodity prices. After a steep decline during the second half of 2014, commodities are now stabilizing. A weaker dollar during the past few months also explains recent upturns in stock markets tied to commodities such as Russia, Canada and Brazil.

Further weakness in the dollar throughout the rest of the year would give a bigger boost to commodities and these foreign markets.

Oil Prices since 2013
Oil Prices since 2013. Source: MetalMiner.

Metals Still Bearish

Industrial metals haven’t really received a boost during the last few months. Although some base metals rose we also saw others recently fall to record lows. Worth mentioning, however, is oil prices climbing to their highest levels this year ($58 a barrel).

After a sharp decline in oil prices it is normal to see metal prices bounce. It seems too early to turn bullish on oil but these latest moves are certainly worth keeping an eye on. Higher oil prices throughout 2015 would help improve the overall bearish sentiment in commodities. A deeper dollar correction would help that scenario to materialize.

What This Means For Metal Buyers

Industrial metals are still in a bearish market which makes buying your metals a lot easier as you enjoy lower prices provided by the down trend. At some point industrial metals will turn upward, but it’s hard to say when. Recent developments in other markets are giving some warning signs that are worth watching but it is still too early to be calling for a major bottom.

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