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Dollar Index Weak, Commodities Gain

Author: Vinod Jayakumar/Wednesday, July 3, 2019/Categories: Exclusive

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Dollar Index Weak, Commodities Gain

After the Federal Reserve retained its interest rates for the current period, the dollar index traded weaker giving support to the commodities, especially gold which hit a high of $1442.9 at international front. On the domestic front, prices touched six-year high of Rs 34,893 per 10 grams. Growing uncertainty over the trade ties between China and the US supported the gold prices. Metals, which were trading low during the initial months of second quarter, recovered at towards the end of June for the same reason. US President Donald Trump and his Chinese counterpart Xi Jinping had agreed to revive the stalled talks to end the intense trade war between the two top global economies. The meeting between Trump and Xi accomplished its intended purpose after the former agreed to withhold 25 per cent tariffs on $300 billion worth Chinese products thereby making the metals to trade positively and giving less support to the bullion segment.

The Trump-led US government reversed the ban on China tech giant Huawei by allowing the US companies to trade with the second largest smartphone manufacturer in the word much to the relief of global investors. On the sidelines of the G20 summit in Osaka, Trump said it is not an issue of national security anymore.  Huawei will now be able to use Google's Android OS and ARM-designed chipsets. Both the leaders are likely to have another round of talks in the second half of 2019. The world would be keenly watching at the events unfolding between the two countries in the days to come.

On energy front, crude traded on a positive note cued by the possible extension of production cuts at OPEC meeting. Russia and Saudi Arabia at G-20 meetings have agreed to extend the production cuts further for the next six to nine months making the prices to stay on a positive note in the coming months. Further to it, OPEC meetings to be held are going to witness another round of talks whether to extend the same or not. With the seasonality demand to come up in the fourth quarter, US refineries will be back to operations from planned maintenance (usually in August – October) and produce more to meet the demand aspect.

The author is a research analyst at Karvy Comtrade Limited

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