FX – The dollar continues to consolidate considerably.
The yen is strengthening sharply, with the dollar trading now below 107 against the yen, its lowest since October 2014, because investors continue to digest BoJ under-delivery. The yuan has also appreciated remarkably against the dollar since April 27, with the dollar trading at 6.47 against the CNY, after witnessing some weakness around mid-April.
The clear depreciation of the dollar is recent days is putting upward pressure on most commodities, including base and precious metals. Nickel at $9,450 was up $155 and nearing last week’s highs when it broke above $9,500 for the first time since November. Market participants said the metal could even get above $9,700 on month-end fund valuations. Stocks rose 1,686 tonnes to 417,438 tonnes. The International Nickel Study Group (INSG) has projected a 49,000-tonne deficit in the nickel market in 2016, an increase from its October forecast of a 23,000-tonne deficit for this year.
Sherritt International said that refined nickel production at its Ambatovy Joint Venture in Madagascar came in below expectations in the first quarter due to a number of unrelated reliability issues on equipment at its high-pressure-acid-leaching (HPAL) plant.
Base metals could continue to strengthen on weaker dollar despite the resurgence of a risk-off environment. The resilience of base metals since week-start suggests that sentiment remains positive.
The ongoing weakness in the dollar despite a slightly less dovish Fed has made shorts increasingly vulnerable, suggesting that the wave of short-covering is likely to continue in the coming days.
But should this risk-unfriendly environment prevail for longer and the consolidation in the dollar end, negative pressure in base metals could reappear later in May.
The London Metal Exchange is shut Monday.
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