Copper gains on weaker dollar limited by QE outlook

Copper was supported on Monday by a weaker dollar and traded higher during European trading, erasing earlier daily losses. However, gains were limited amid concern of Fed scaling back its monetary easing program following Fridays positive labor data. Investors also eyed this weeks key economic data out of the metals top consumer, China.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded at $3.079 a pound at 12:20 GMT, up 0.35% on the day. Prices ranged between days high and low of $3.088 and $3.059 a pound respectively. The red metal settled 2.5% lower on Friday after the U.S. Labor Department announced the U.S. economy created more jobs than expected during June and revised upward its May reading. However, copper still closed the week 0.38% higher after falling the previous two.

On Friday, the U.S. Labor Department reported that Non-Farm Payrolls surpassed expectations for a 165 000 reading, surging to 195 000, aligning to May’s revised reading. The Unemployment Rate for June in the world’s biggest economy failed to meet expectations for a 7.5% decline but remained unchanged at 7.6% compared to May.

Average Weekly Hours met projections and remained the same compared to June at 34.5 hours, whereas Average Hourly Earnings surged to 0.4%, surpassing projections of a 0.2% gain and above May’s 0.1% revised reading.

This shot the dollar index up to a 3-year high on Friday, after which a higher level of 84.83 was reached today during the Asian session. The gauge surged almost 0.9% on Friday, closing the week 1.53% higher after settling the previous two weeks 0.98% and 2.21% on the upside, respectively.

Ben Bernanke announced after the latest FOMC meeting that the central bank will most likely scale back its bond purchasing program during the second half of the year, if the economy’s recovery keeps in line with Fed’s expectations. According to Bernanke, Fed’s moves are tied to what happens in the economy and the central bank has no fixed plan, but sentiment points at reducing bond purchases. Bernanke said that if the economy continues to improve in line with Fed’s projections, it would be “appropriate to moderate the monthly pace of purchases later this year”, and end the program as the unemployment rate drops to 7%, which Fed expects to happen around mid-2014.

Investors are looking ahead at Wednesday’s Fed minutes where additional information will be provided about the central bank’s future monetary policy.

Fang Junfeng, an analyst at Shanghai CIFCO Futures Co., said for Bloomberg: “The good employment data fueled the expectation the U.S. will exit the bond purchase as planned. That will be negative for commodities priced in the dollar. Copper is more vulnerable to further sell off than other metals like aluminum zinc, which are already near production costs.”

Today, controversial data from Europe pressured slightly the dollar, causing the U.S. currency gauge to drop from its 3-year high. The dollar index for September settlement traded at 84.60 at 12:13 GMT, down 0.11% on the day, allowing copper to extend positions.

Meanwhile, investors will be keeping a close eye on this weeks key economic data from China. The Asian country is the metals biggest consumer and accounts for 40% of global consumption. It is widely used in the Chinese industrial production and signs of economic expansion or contraction cause wide fluctuations in copper pricing. Chinas CPI is due on Tuesday, while the countrys Trade Balance will be published on Wednesday.