FX:Cotton futures drop to 1-week low in risk-off trade
Forexpros - Cotton futures came under heavy pressure on Wednesday, falling to a one-week low as renewed concerns over the euro zone’s debt crisis and reduced expectations for monetary easing in the U.S. prompted investors to shun riskier assets.
On the ICE Futures U.S. Exchange, cotton futures for May delivery traded at USD0.9116 a pound during European afternoon trade, tumbling 1.6%.
It earlier fell by as much as 1.7% to trade at USD0.9108, the lowest since March 27.
Agricultural commodities came under pressure from a broadly stronger U.S. dollar, after minutes released Tuesday from the March meeting of the Federal Reserve's Open Market Committee indicated that the central bank was unlikely to introduce more stimulus measures to help boost the U.S. economy in the near term.
Stock markets, commodities and growth-linked currencies all fell after the minutes were released, while the dollar spiked higher, as markets interpreted the comments as meaning the Fed was less likely to purchase new securities.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.45% to trade at 79.90, the highest since March 26.
A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.
Also weighing on sentiment, Spain’s Treasury auctioned EUR2.59 billon of government bonds, short of the maximum targeted amount of EUR3.5 billion, in the country’s first debt auction since last week’s austerity budget.
Following the auction, the yield on Spanish 10-year bonds climbed to 5.7%, up from 5.5% before the sale.
There have been renewed concerns of further debt contagion in the euro zone in recent weeks amid fears over the fiscal health of Spain and Portugal.
On Tuesday, Spain’s government announced that the country’s public debt will rise to a record 79.8% of gross domestic product this year.
Demand for cotton, as a non-food agricultural commodity, is seen as more closely linked to economic conditions and consumer sentiment than that for other farm crops.
Meanwhile, investors continued to look for clues in regards to future fiber demand from top consumer China after the Asian nation completed a program of replenishing state cotton reserves on Saturday, March 31.
The International Cotton Advisory Committee said in a report Monday that global cotton trade and prices are affected to a large extent by government policies in China and to a lesser extent by policies in India.
Cotton traders have been focusing on prospects for increased Chinese demand in recent months after the country started a cotton stockpile last September to protect domestic farmers' interests.
Elsewhere, on the ICE Futures Exchange, coffee futures for May delivery tumbled 2.4% to trade at USD1.8090 a pound, while sugar futures for May delivery eased down 0.3% to trade at USD0.2416 a pound.
