US copper futures hit a seven-week high in early business on Thursday, as a new record low in the dollar versus the euro boosted the industrial metal's appeal and extended the market's weekly gains, brokers said.
"It's all about the dollar...that's what is keeping the gold and the base metals up this morning. The weakness in the dollar is something a lot of people have been predicting for a long time and it has been unfolding, slowly but surely...exacerbated by the FOMC decision," said one New York-based dealer. Copper for December delivery was trading up 2.15 cents to $3.5970 a lb by 10:42 am EDT (1442 GMT) at the New York Mercantile Exchange's Comex division, moving between $3.5530 and $3.62, its highest level since July 31.
Futures volumes hit 6,283 lots by 10 am. The dollar broke above $1.40 per euro for the first time on Thursday, pressured by a hefty half-percentage-point US interest rate cut on Tuesday and expectations of further cuts in benchmark rates. The breach of the key $1.40 level in early European trade sparked a broad-based euro rally.
In early New York trade, the euro rose to a record high of $1.4071, before surrendering some gains to trade at $1.4067 by 10:43 am. After two days of Fed-induced strength, analysts believed the recent bullish momentum could begin to wane as traders digest the sharp moves and begin to refocus on the health of the broader economy.
"The state of the US housing market remains the key risk to further moderation in growth and weak housing starts and permits data yesterday is more evidence of the ongoing correction in that sector," analysts at investment bank UBS said.
Ground-breaking on new US homes fell 2.6 percent in August, its lowest level since mid-1995, the Commerce Department said on Wednesday, while building permit activity, a sign of future construction plans, also dropped to a 12-year low. Tighter supply/demand fundamentals continue to offer support, with traders focusing on developments out of Peru where a union at Southern Copper's Toquepala copper mine voted to go on strike starting October 2.
This comes after a leading labour federation called for a nation-wide walkout in Peru's minerals sector on Wednesday. London Metal Exchange (LME) copper warehouse stocks fell by 500 tonnes to 133,375 tonnes on Thursday, while Comex copper stocks eased 82 at 20,193 short tons on Wednesday. LME copper for delivery in three months last traded at $7,920 a tonne, down $10 from Wednesday's close.