China is the biggest importer of copper worldwide, a fact that has led traders to sell the red metal in anticipation that Chinese demand will dwindle. This is due to the HSBC survey of Chinese manufacturing which shows that the sector has contracted for a second consecutive month, leading to concern that China is in for a credit crunch.
The cost of borrowing for Chinese banks on the overnight market has risen and is also weighing on investor sentiment; the People’s Bank of China has stated it will not force banks to curb their loose-lending policy, which may do more harm than good in the long-run. If further doubts are cast over China’s credit markets, we could see copper fall further.
Traders are eyeing the US dollar which is largely driven by the actions and statements of the Federal Reserve; the current rally that the currency is seeing is down to the belief that the Fed will trim its stimulus package in the next few months. The US will announce durable goods orders at 1.30pm (London time). If the report is strong, it may drive the US dollar higher which could drag on the price of copper.