The US dollar ended up being the biggest influence for commodity markets last week and in May.
The greenback started May on a weak note after tumbling against other currencies in April.
That weakness continued into the second week of May (the Aussie dollar hit a four month high of more than 81 US cents) and then reversed over the next fortnight.
As a result the US dollar finished the month higher against its main rivals, the euro, yen and British pound, the Canadian dollar, Aussie dollar and the Kiwi dollar.
In fact it was up 2% against the euro in a major reversal of the situation in April.
And commodity prices, while some enjoyed gains for May, ended the month well off their highs.
At the same time US Treasury prices sold off early in the month and yields rose as the big bond rally centred on German bunds ended. But the selling petered out and US bond yields ended May at their lows.
The yield on the 10-year Treasury bond fell was down 3.5 basis point to 2.097% on Friday. Over the month of May, the 10-year bond yield gained 5.1 basis points and hit its peak of 2.283% on May 13, making the rally in the final fortnight of month quite significant, and hurting commodities such as oil, gold and copper.
Since hitting peaks in mid May, the Aussie dollar lost 5.2%, falling to 76.45 US cents at the close early Saturday morning. Over May, as a whole, the Aussie lost 4.2% against the greenback and 2.4% on the Trade Weighted Index which hit 63.70US cents on Friday afternoon.
Remember that after the RBA cut its cash rate at the start of the month, the dollar surged to over 81 US cents in the next 10 days, then started easing as sentiment changed in US markets about the US rate rise timing.
Despite Friday’s confirmation that the US economy contracted by an annual 0.7% in the first quarter, as opposed to the 0.2% expansion in the first estimate, markets still see a rate rise coming from September onwards.
The strength of the greenback has come as investors realise US interest rates will rise sometime later this year.
A small sell-off in the greenback on Friday in the wake of the weak GDP report helped push commodity prices higher on the day, as did the usual end of month window dressing by traders.
That turnaround in sentiment towards the US dollar (and the easing in the bond sell-off in Europe) helped sink commodity prices in a major way.
For example, the Brent futures price for oil (the world’s main indicator price) contract – down nearly 7% since its high for the year on May 6. US oil prices are also down.
Comex copper futures prices have fallen nearly 6% since its peak for the year in early May.
On Friday oil futures rallied in the wake of another fall in US oil stocks (but a rise in daily production) and a larger than expected fall in US oil rig use – 13 last week against one the week before.
As well, oil traders around the world are now focusing on Friday’s half year meeting of OPEC which is not expected to see any production cuts.
So US West Texas type crude futures rose $US2.72, or 4.7%, to $US60.40 a barrel. It was trading at $US59.95 before the rig use figures were released as usual by Baker Hughes.
That left US prices up about 1.3% and 1.4% for May – but a big way away from the 8% plus rise that looked possible mid month.
In London July Brent crude rose $US2.95, or 4.7%, to $US65.53 a barrel. Brent rose 0.2% but fell about 2% for the month.
Comex gold futures scored their first monthly gain in May in four months, but still settled lower for the week on the back of recent strength in the greenback on Friday.
Prices erased earlier losses Friday to settle higher at the close after the weak US GDP report at the start of the day’s trading in the US.
Comex gold for August delivery rose $US1, or 0.1%, to settle at $US1,189.80 an ounce on Comex after earlier tapping a low of $1,186. Gold lost 1.3% for the week, but eked out an 0.7% gain for the month, thanks to its starts of month surge to well over $UD1,200 an ounce.
Comex July silver rose 3.2 cents, or 0.2%, to $US16.701 an ounce in New York. Prices were up about 3.6% for the month and down 2.1% for the week.
Comex July copper fell 4 cents, or 1.4%, to $US2.728 a pound, losing around 5.5% for the week. It had peaked well above $US2.92 a pound earlier in May.
