The likely rebound of US dollar poses the biggest downside risk for commodities in the short term, according to Xu Maili, commodities research director at Guangda Futures.
“Funds are currently holding quite a lot of long bets, I think the need to cover their positions once the US dollar becomes stronger would be intense,” Xu said in an interview with SMM.
While the weakening US dollar since the second half of last year was beyond market expectation, Xu said he did not see a bear market for the greenback. Healthy economic growth in the US, tightening liquidity of the currency as well as higher interest rates would all give support to the US dollar.
He added that the recent weakness in the US dollar has more to do with a stronger euro.
Looking forward, Xu is more bullish on copper and nickel due to better fundamentals. While aluminium prices could also go up on stricter environmental policies, zinc may see limited upward room, he said.