What The US Federal Reserve’s Next Move Means for Commodities

When it comes to investing, always expect the unexpected. At the start of the year, most people thought the greenback would skyrocket this year.

The currency has done the exact opposite.

The US dollar index — a measure of the strength of the greenback against a basket of currencies — is trading around 91 cents. It’s down from $1.03 at the start of the year.

Which is surprising, considering that geopolitical risk has surged; US interest rates have gone up; and the US stock market has taken off. You’d say those conditions are perfect for a bullish dollar. But that hasn’t been the case.

The good news of a weaker greenback, however, is that some commodities — copper, nickel, gold and silver, for example — have skyrocketed. Keep in mind that there’s an inverse relationship between the US dollar and commodities. In other words, commodity stocks have been given a big boost.

For example, as explained yesterday, a copper stock tipped in Resource Speculator at 0.9 cents has tripled since 29 August. Another nickel stock, which offers blue-sky potential in my view, has doubled since 27 July. Mind you, that’s just the start. I believe the stock could be about to make readers a lot more gains.

I’ll explain…

Watch the Federal Reserve’s next move for resources

MarketWatch reported on Monday:

It’s generally assumed that when a central bank raises interest rates, the corresponding currency will strengthen.

The underpinning logic is that foreign-exchange speculators flock to countries with higher rates in anticipation that investors will soon follow, attracted by higher yields.

But since President Donald Trump was elected in November, the Federal Reserve has raised rates three times, while a closely watched dollar gauge slipped to a 33-month low. The ICE dollar index, which measures the greenback’s performance against six of its major rivals, has shed more than 10% of its value this year, and last week touched a 2 1/2-year low.

“With the Fed struggling to convince the market that there is more than one hike left in the cycle and a U.S. bond market that, unlike equity markets, is sending increasingly gloomy signals (in an eerie reflection of 10 years ago), the threat to the USD appears to be growing,” said [Simon Derrick, chief markets strategist for BNY Mellon in London].

Simon Derrick makes a very good point — the US Federal Reserve doesn’t have a clue what it’s doing.

Despite numerous bullish opinions, the US economy isn’t as rosy as it seems. Healthcare, rising rent prices, student loan debts and fuel consume most disposable income. There’s little room for discretionary spending. That said, despite the tough conditions, the US stock market continues to rise. That’s why the US Fed keeps raising rates. It doesn’t want to be blamed for causing a stock market bubble.

The Fed, of course, disagrees with that verdict. It argues the ‘economic conditions’ are ready for more rate raises.

Federal Reserve Bank of Boston president Eric Rosengren is the most bullish Fed member. He’s urged colleagues multiple times to raise rates three more times this year. That’s on top of the Fed’s March rate rise. ‘I’m now more concerned that we’re beyond what’s going to be sustainable unemployment,’ he told Fox Business last monthstocks

Several other officials agree that rates should go higher. But they are less bullish. We’re told that tighter labour markets are forcing employers to compete for workers. That should ultimately lead to rising wages and prices, which justifies another rate increase this year. Unfortunately, the economic tale doesn’t add up.

The latest jobs report from a fortnight ago didn’t make for great reading. Following two straight months of hefty increases, US jobs growth slowed more than expected in August. The US Labor Department said non-farm payrolls increased by 156,000 last month. Most economists had forecast an increase of 180,000.

Will there be a rate rise next week?

According to CME Group’s Fedwatch Tool, there’s almost no chance of a rate increase next week. That said, there is a 41.1% chance of a rate rise in December. Either way, don’t expect another rate increase next week. The latest economic data isn’t great. And while that might not be good news for the greenback, it should be for commodities.

The US dollar Index is trading at two-year lows:

US dollar Index 13-9-17

Source: Interactive Brokers
[Click to enlarge]

There’s a bit of support around the 89-cent region. Don’t be surprised if the dollar dips that low before reversing higher.

That should spell good news for commodities in the weeks ahead. Don’t miss out on the next big profit opportunity potentially. Details here.


Jason Stevenson,
Editor, Resource Speculator

Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:

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