Futures & Commodities

Forget China, the US offers commodities upside: Expert

Are commodity prices on the mend?

Commodity price swings aren't all about China's weaker demand; the U.S. could move the market upwards as its taste for commodities returns, one expert predicts.

Upbeat data from the US suggest the possibility of an Federal Reserve interest rate hike soon, which would be a boon for commodities, Invast Australia's director of research, Peter Fay, said.

"There are other countries that can come out and add to demand, it's not just China," Fay told CNBC's Squawk Box on Tuesday.

The U.S. Bureau of Labor Statistics reported Friday that nonfarm payrolls grew 271,000 for October, a sharp jump from weak August and September numbers.

The positive numbers point to a possible rise in interest rates when the Fed meets next month.

Federal Reserve Chair Janet Yellen had said last week that December would be a "live possibility" for a rate hike if the upcoming data were supportive.

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Fay said any rise in U.S. rates would be a positive for commodities as the main headwind for commodities prices has been the strength of the dollar against other major currencies.

Commodity prices tend to rise when the Dollar Index rises, as most products are traded in the greenback

Conventional wisdom is that the dollar gains on U.S. rate hikes. But Fay said historical data showed this was not the case after the first rate rise in a cycle.

"If you look historically, after the first rate rise the dollar index actually drops; this has been the case for the last seven, eight years so we think there might be some drop in the dollar index and this should lead to possibly some increase in (commodity) prices," he added.

Over 80% chance Fed will move in Dec: Pro

The fact that U.S. housing statistics, the construction index and new vehicle sales have also been rising steadily for the past seven years and are now at their highest levels since the global ginancial crisis of 2007-2008, is also helping stimulate demand for commodities, said Fay.

The excess iron ore supply that drove prices to multi-year lows was also likely to be moderated as some higher cost producers are squeezed out of the market, negating some supply glut, Fay said.

While Chinese trade data released at the weekend was negative, Fay said the statistics may be positive for commodities in the long run as the weaker numbers would twist "the Chinese president's arm in further stimulus, and they've got a lot of stimulus possible left to give."

Trade data from the world's second largest economy released disappointed the market, with October exports falling 6.9 percent from a year ago, dropping for a fourth month, while imports slipped 18.8 percent, leaving the country with a record high trade surplus of $61.64 billion, the General Administration of Customs said.