Weaker US jobs report may soften dollar, providing respite for commodities

Commodities Outlook

Trump's tariff anxieties helped the US dollar gain momentum and limit its monthly losses, while leading to sharp losses in risky assets in February.

The US dollar index rose nearly 1% last week, supported by Trump’s confirmation of 25% tariffs on Canadian and Mexican goods, along with a 10% tariff on Chinese imports, effective March 4. However, the dollar saw mild weakness after data showed that the US Core PCE rose at the slowest pace since early 2021, fueled expectations that the Fed could have the flexibility to lower interest rates at least twice this year.

Despite this, the Greenback regained momentum and hit a two-week high of 107.66 on Friday, while the Euro dropped to $1.0359, its lowest since February 12, after a meeting between Trump and Ukraine’s President Zelensky ended abruptly, stalling peace talks on the Ukraine-Russia conflict.

COMEX Gold futures ended an eight-week rally with a sharp 3.5% decline, settling below $2,950 per ounce, marking its first weekly loss this year. After reaching a record high of $2,974, gold prices retreated to a three-week low, driven by profit-taking and a stronger US dollar. Despite the pullback, gold still closed February with its second consecutive monthly gain, supported by safe-haven demand amid ongoing geopolitical and economic uncertainties.

WTI crude oil closed the week below $70 per barrel, marking its first monthly decline since November, primarily due to concerns over demand from Trump’s tariff threats and fears of a supply surge from the potential resumption of oil exports from the Kurdistan region. However, oil prices recovered from a two-month low of $68.40 per barrel, driven by speculation that OPEC+ might delay its planned output increase for April and potential supply disruption concerns after Trump revoked US oil giant Chevron's license to operate in Venezuela.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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MCX Crude oil March Futures on the daily chart began the week by opening a gap down and continuing to decline. However, the price has retained the support of a descending trendline and has risen in the last two trading sessions. It is too early to expect a reversal because the price is still below the 20 EMA and the Supertrend (7,3). Breaking and sustaining above 6206 may push price higher till next resistance which lies at 6345. On the flipside 5975 will act as strong support for the price.

NYMEX natural gas futures declined by 9.5% last week, despite a bigger-than-expected inventory draw, as record production and milder weather forecasts dampened heating demand prospects.

LME base metals fell, with copper hitting two-week lows on Friday amid concerns that a trade war could slow growth in China, the top consumer. Beijing urged the US to end its investigation into Chinese copper imports, warning of potential counter measures if tariffs are imposed.

Markets are now focused on the US jobs report, which, if it adds to the string of recent disappointing economic data, could solidify expectations of a rate cut in June. Service and manufacturing PMI reports will also be closely watched for broader economic signals. Additionally, the ECB's monetary policy decision, where a rate cut is widely expected, along with speeches from several Fed officials, will be in focus.

Oil market participants are particularly eager to see if OPEC+ members reach a consensus before the March 5-7 deadline for setting April's production targets. However, most importantly, traders will remain on edge amid market volatility driven by further tariff announcements and policy decisions from Trump.

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