Trump’s Desire for a Weaker US Dollar Brings Upside Potential to Metal Prices

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Source: Jeff Yoders/MetalMier

“Threats of a trade war intensified over the weekend, as President-elect Donald Trump said the U.S. dollar ‘is too strong,’ wrote Investors Business Daily recently.

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Trump, who will be president in one more day, also “warned BMW that it will face a 35% tariff on imports to the U.S. from a plant it’s building in Mexico,” according to IBD. In addition, Trump specifically called out China and its weakening currency, stating that U.S. companies can’t compete with China because the dollar is too strong.

Dollar Index Falls to a 1-Month Low

The U.S. Dollar Index Falls to 1-Month low on Trump’s talk. Source: MetalMiner analysis of @stockcharts.com data.

All of this helped lower the U.S. dollar index by 1% against the world’s other major currencies, falling to its lowest level in a month. Previous administrations have maintained a steady policy of backing a strong dollar and, according to The Industry Spread, “presidents have tended to refrain from commenting on the currency altogether.”

Truth be told, this recent dollar weakness is not reason enough to call the end of the currency’s bull run. There are also other factors playing in favor of a stronger dollar, such as relatively high U.S. interest rates compared with the rest of the world and the expectation of domestic growth.

Still, “markets watch Washington’s words about the currency carefully because the U.S. has pursued sudden shifts in the past,” wrote Ian Talley in the WSJ. We still need to monitor the situation until Trump provides more clarity on his proposals, but his desire for a weaker dollar is something to keep in mind.

Industrial Metals Rebound

The base metals ETF hits one-month high as dollar falls. Source:MetalMiner analysis of @stockcharts.com data.

A weaker dollar this month contributed to a rebound in industrial metal prices. A falling dollar is bullish for dollar-denominated commodities like industrial metals.

Two-Month Trial: Metal Buying Outlook

As we remain bullish on metals, we were expecting a price rebound this month. Metal buyers need to pay close attention to new developments in the dollar. A falling dollar would give a boost to the current bull market in industrial metals.

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