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Copper could help push Antofagasta and AUD/USD higher

With copper rallying through a major resistance zone, a strike in Chile could lead to further upside for the metal, as well as Antofagasta, and the Australian dollar. 

Source: Bloomberg

Copper prices have been skyrocketing throughout this week, as the beginning of wage negotiations raise fears of another fall in supply at Escondida in Chile; the world’s biggest copper mine. Last year saw significant disruption at this mine, having a substantial impact upon the price of copper as a whole. A 40-day strike in March and 24-hour strike in November have done little to resolve long-term issues with workers at the plant. The 40-day strike was only resolved with an agreement to extend the previous contract by 18 months. With that contract expiring in August 2018, the resumption of those divisive negotiations is back on the cards, helping drive uncertainty over supply implications.

With copper prices up 5% this week, there has been a clear response from markets after weeks of consolidation. The precious metal is typically seen as a gauge of economic health, and thus this could also be perceived as a response to rising world growth. The threat of tariffs on aluminium and steel are also likely to be playing into market sentiment.

Looking at the weekly chart for copper, we are trading back at the crucial 7313 level, which is going to set us up for the coming weeks and months. Initial signs point towards a bullish breakout, which would subsequently provide us with expectations of further near-term upside. Utilising the Andrews’ pitchfork indicator, there has been a clear return to the upper threshold of the pitchfork. A break through this 7312 level would therefore point towards that line as a guide of where we expect the price to travel, as we move forward without any resolution.

One of the biggest benefactors from this rise in copper prices has been Antofagasta; a copper mining firm listed on the FTSE 100. While BHP Billiton have to deal with the impact of a potential strike at their Escondida mine, Antofagasta have been enjoying higher copper prices without the disruption to operations. The monthly chart below highlights the incredible run Antofagasta has been on since 2016, with shares gaining 241% since the January 2016 low of 340. The price is currently at the 61.8% retracement of 1163. However, we are likely to continue rising as long as copper does the same. A break through this level would point towards further upside, with little resistance up ahead until we get to the 1357-1391 resistance zone.

Finally, from a country specific level, the Australian dollar is an interesting market to follow. Not because they are a particularly big producer of copper, but more because the Australian dollar is highly sensitive to the price of base metals. With copper, zinc and nickel all rising sharply of late, we are seeing AUD/USD rising in the wake of a very tough January-April period. Building on a month-long period of consolidation, there is a strong chance we will see a move higher if commodity prices continue to rise. With the pair having broken down from a long-term rising channel, there is a strong chance that we are looking at a retracement of that January-April decline, rather than a move which will overcome the 8125 high. However, with the recovery still in its infancy, we could see a protracted period of upside come into play for the AUD/USD pair.

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