The upcoming interest rate hike of the United States Federal Reserve is in less than a week; commodity traders are weighing up their options on how to cushion the possible outcome of the increase.
The Commodities Week Nears
The upcoming rate hike is one scenario that has commodity traders hyperactive. As the Fed continues its hawkish stance, traders are preparing for ways to hedge the outcome of the hike.
However, the trader’s move may be hampered by the latest happenings in China. The Chinese authorities have announced some aggressive measures triggered by another coronavirus outbreak. This may stifle the market, but a strong market may come back from the oil and precious metals sectors.
Asia’s Monday trading has commenced, and price indicators point to the red zone. Crude oil and Copper have shed a large percentage of their last week’s gains following one of the worst trades since the Eastern European conflict between Russia and Ukraine broke out.
Further analysis of United States crude’s West Texas Intermediate shows the benchmark is down by 1.2%. This implies that a barrel of crude was down to $85. 72 as at 02:22 ET.
In addition, the WTI slumped to a seven-month low over the past week, at $81.20. However, it sets a new weekly high of $86.79 after reversing the downtrend. The rebound seems to have little impact as it is currently down 35% from its high of $130.50 as of March 7.
Furthermore, the latest trade data shows Brent is down by 1%. The previous week saw it record its seven-month low at $87.25 before soaring to $92.84. Notwithstanding the reverse, Brent drops 34% from the March high.
For its part, Copper has been hovering between the green and red zones. It has moved from a high of $3.5565 to a low of $3.5320.
However, the EU and U.S. trading periods may change the market’s direction in a positive sentiment by the close of Monday’s trading session.
Will the Volatility Surge?
The market instability has shown how strong factors have hindered the short-term bull trend. The COVID-19 situation in China and rising inflation from upcoming rate hikes by both the ECB and the Fed might affect both regions in the long term. The general market perception is that the overall negatives far outweigh the positives.
In China, roughly 65 million citizens from 33 cities have been placed under compulsory quarantine. Authorities are still battling to control the new outbreak as the countdown to the Communist Party’s 20th Congress begins mid-October.
The USD may have retreated last week following its 20-year high. However, the hawkish stance of the Fed and ECB in fighting inflation may cause opposite movements in the commodity market.
The rising interest rates move commodities to address inflation.
Meanwhile, the Federal Reserve rate hike will likely occur on September 21. In the meantime, the market expects the consumer price index (CPI) reports for August later in the week.