Get Ready For Commodity Declines

The commodities market has been having a rough time in the market for quite some time now. Unfortunately, we’ve only seen the beginning of the struggles. Recently, positive data was released with regard to the United States economy, insinuating that the Federal Reserve is likely to increase its interest rate. Today, we’ll talk about the positive data that was released, why a higher interest rate is going to cause pain for the commodities market, and how binary options traders can turn the declines into profits!

US Jobs Signal A December Interest Rate Hike

The Federal Reserve has been talking about raising its interest rate for quite some time now. After all, we have seen record low interest rates in effect for more than 6 years at this point. However, recent attempts to raise rates have been thwarted thanks to poor economic data out of the United States. Nonetheless, poor seems to be turning to positive. On Friday, the US jobs report for the month of October showed incredibly positive news. While analysts expected to see jobs grow by between 160,000 and 180,000 in the month, the country actually added 271,000 jobs to the economy in the month. This positive data is opening a door for the Federal Reserve to reach its goal of increasing its rate by the end of the year. At this point, analysts are expecting to see the Fed increase its rate in the month of December.

Why The Fed’s Interest Rate Will Take A Toll On Commodities

If you’re a commodities trader, you may want to watch the Federal Reserve’s interest rate very closely. When the Federal Reserve increases its interest rate, what it’s really doing is increasing the value of the United States dollar. After all, with a higher interest rate in play, investors will be more likely to invest in the USD. This plays a big role in the value of commodities. Here’s why…

Most commodities are priced using the United States Dollar. As a result, when the value of the dollar declines, the cost of commodities in nations outside of the United States tends to decline. This leads to increased demand and higher commodity prices. Adversely, when the value of the USD rises, as it will when the interest rate is increased, commodities become more expensive in other nations. As a result, demand for commodities outside of the United States dwindles, leading to price declines in the market.