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The Resource for the Global Finance Profession

Manufacturing Growth Boosts Commodities, Drives U.S. Dollar Down

  • By Andrew Deichler
  • Published: 2012-01-03

Multiple surveys showed that manufacturing in the United States, China, Australia and India expanded significantly in December, boosting investor confidence and lowering the U.S. dollar.

Expansion of the U.S. and Chinese manufacturing sectors bolstered investor confidence the most. The U.S. manufacturing sector increased for the 29th consecutive month, up 1.2 points to 53.9 percent from November’s reading of 52.7 percent. The Chinese manufacturing activity rose to 50.3 percent in December, up from 49.0 percent in November.

The Canadian dollar hit a three-week high against the U.S. Dollar Tuesday. Though not quite back to parity with the USD, the CAD is at its strongest level since December 8. The Australian and New Zealand dollars also hit new highs, while the euro advanced from an 11-year low against the yen and a 15-month low against the USD.

The USD, meanwhile, retreated against common currencies significantly Tuesday as investors moved away from safer assets. “One of the factors that’s undermining the dollar today is a reversal of year-end trades into the safe haven of the dollar,” Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., told Bloomberg. “It’s helping reverse international equities and cause some dollar softness right now.”

Copper futures surged to a three-week high, following the positive news, particularly from China. As China is the largest consumer of the commodity, speculators are surmising that the country will up its purchases.

“The markets are responding to a pretty good start to the year,” Amarjit Sahota, CEO of KlarityFX, told AFP. “The Chinese announced their Purchasing Managers’ Index data, which was stronger than the market was anticipating, and that’s lending support out there. So everybody’s starting the year on a pretty buoyant front. Equities are already up and that’s helping people go with the mindset that it’s okay to put risk back on in the marketplace. The upbeat mood may well be short-lived as the fundamentals have not materially changed since the end of last year. In particular the Euro-zone crisis remains the key risk and we could see the resumption of the fragile state as early as next week when Merkel and Sarkozy are scheduled to meet on EU issues.”

Moreover, not all of the commodity price increases are solely the result of positive activity. Oil jumped to $101.11 a barrel on the New York Mercantile Exchange as tensions between grew between Iran and the Western nations. The U.S. has imposed new sanctions on the Iranian central bank, which could potentially affect Iran’s ability to sell oil on international markets. Should Iran’s oil business take a hit, the country said it is prepared to close the Strait of Hormuz, an integral passageway for oil in the Middle East. Iran tested missiles near the strait as part of a 10-day effort to show its control over the region.


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