US copper futures closed lower on Tuesday, after slipping when European and Asian markets sold off after being closed on Monday when New York prices fell, and dollar strength exacerbate the declines in a thin market, traders said. Anticipation of the Federal Reserve's rate-setting decision kept copper activity light during the session. With the Fed raising its target rate by a quarter percentage point, as expected, after copper closed, traders said they expected prices would decline further when the market opened on Wednesday.
"It was weaker on certainly dollar-related, with the dollar stronger against the euro. But, I think, as the day wore on with the lack of follow through selling, a little bit of short covering ensued. Mostly light volume, local action," said one copper trader.
At the Comex division of the New York Mercantile Exchange, benchmark July copper dropped 1.15 cent to close at $1.4435 a lb. in a range between $1.4320 and $1.4540 a lb.
Spot may copper lost 1.75 cents to finish at $1.4785 a lb. Other contracts settled from 0.30 to 1.25 cents lower. Shuttered Asian markets also stifled US copper volumes. Comex pegged closing copper volume at 10,000 lots, up somewhat from Monday's tally at 7,535 lots.
China will be closed for the week for a Labour Day holiday and Japan will be closed from Tuesday to Thursday for Golden Week holidays. Traders said the big news on Tuesday was the Fed's eighth consecutive interest rate increase to a 3 percent target.
Favourable differentials should keep the dollar up on the euro and hinder copper's price prospects. The dollar's outlook steered copper prices ahead of the projected US interest rate rise.
A stronger dollar enhances overseas players' investments in dollar-denominated assets. The dollar hit a two-week high against the euro on Tuesday and rallied further after the Fed's decision to raise rates to fight inflation, despite signs of slower US economic growth. "Inflation is still the biggest enemy over growth.
As long as growth stays about where it is, that steady pace is not bad, as long as inflation remains in check," a trader said. He said he thought the higher interest rate and rising dollar scenario was having a diminishing impact on copper.
"With Comex exchange stocks falling below 30,000 for the first time, I think it prompted the usually happy-go-lucky shorts to rethink their positions. With the way things are it wouldn't surprise me if copper stayed relatively calm within a penny or two of where it is now either way," he added.
Improved US factory orders were also seen as evidence to underpin copper prices. March orders were up 0.1 percent, compared with a downwardly revised 0.5 percent drop in February. March orders were forecast to fall 1.2 percent. Within the report, March durable goods orders were upwardly revised to a 2.3 percent drop, and the inventories-to-shipments ratio slipped to 1.25 months worth of goods on hand at the current shipment rate, down from 1.26 months in February.
London copper closed lower on the first day of trade after a long holiday weekend, and was still seen to be vulnerable.
London Metal Exchange three-months copper ended on Tuesday at $3,188 a tonne, down on Friday evening kerb at $3,215 a tonne.
On Tuesday's range spanned $3,163 to $3,200.
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