Copper surges on weaker dollar, China lending reform

Copper rose for a third consecutive day as a broadly weaker greenback supported dollar-denominated commodities and news on Chinas lending reform boosted demand prospects.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded at $3.175 a pound at 10:33 GMT, up 1.12% on the day. Prices held in range between days high and low of $3.177 and $3.145 a pound respectively. The industrial metal rose for a third day after it settled 0.24% lower last week, pressured by demand concern from worlds top consumer China.

The red metal was supported recently by upbeat U.S. economic data that pointed at consistent recovery of the U.S. economy. Initial Jobless Claims during the week ending July 13 fell to 334 000, exceeding expectations of a drop to 345 000 from the preceding week’s downward revised reading of 358 000. The four-week moving average fell by 5 250 to 346 000, down from the previous week’s revised average of 351 250.

Meanwhile, Philadelphia Fed Index also surprised market players. The indicator surged to 19.8, the highest since March 2011, surpassing analysts’ projections for a drop to 8.0 from May’s 12.5 reading. Of the 82 S&P 500 members that have released earnings so far this season, 73% surpassed analysts’ expectations, while 52% have beaten on sales.

Copper and other raw materials were supported last week as Fed Chairman Ben Bernanke reiterated his preceding week’s statement at his two-day testimony to Congress on Wednesday and Thursday. Bernanke reinforced Fed’s view that Quantitative Easing is still expected to be tapered within the year and brought to an end by mid-2014, if the requirements are fulfilled. However, the Fed chief stated the U.S. economy currently needs Fed’s accommodative monetary policy in the foreseeable future and it can even be accelerated, if recovery slows its pace.

This caused the dollar to plunge, thus supporting dollar-denominated commodities. The dollar index, which tracks the greenback’s performance against six major counterparts, plunged 0.2% on Friday, extending last week’s decline to 0.45% after falling 1.87% the preceding week. On Monday, the U.S. currency gauge for September settlement traded at 82.39 at 10:34 GMT, down 0.41% on the day. Prices held in range between day’s high and low of 82.74 and 82.37 respectively.

Meanwhile, the metal was also supported as the Group of 20 which accounts for 90% of the world economy pledged to put growth before austerity, fueling hope of a recovery in commodities consumption. Copper drew further support as China urged local governments to support economic growth by speeding up spending this year’s budget. The country also made a move to remove controls on bank lending rates, which should provide cheaper credit and lower financial costs for companies, spurring economic growth.

Wang Jun, an analyst at Beijing Cifco Futures Co., said for Bloomberg: “The weakness in the dollar, coupled with growth-supportive measures in China, are lending support to copper.”