COMMODITIES-G20 nod to FX may help risk assets but Fed still key

* Risk assets may benefit from G20

* Fresh Fed action still in spotlight

* No new drivers for oil

By Amanda Cooper and Barbara Lewis

LONDON, Oct 24 (BestGrowthStock) – Copper, oil and other
growth-linked commodities may benefit this week from the G20’s
hardened stance towards exchange rates, but anticipation of more
U.S. policy easing is likely to remain in the spotlight.

The Group of 20 major economies agreed on Saturday to shun
competitive currency devaluations but stopped short of setting
targets to reduce trade imbalances that are clouding global
growth prospects. [ID:nTOE69M004]
This consensus could prove positive for risk assets,
although the meeting yielded no major policy iniative and
nothing close to the grand bargain in which participants would
agree to allow their currencies to appreciate that some more
optimistic market watchers were hoping for.

“There’s some token partnership in working together, but
there’s nothing formal that’s going to change the amount of
liquidity,” said Patrick Armstrong, a fund manager with
Armstrong Investment Managers

“The same forces that have been driving commodities up over
recent months will remain and countries will continue with
short-term thinking about trying to give themselves competitive
advantages.”

For the commodities complex, much will depend how the
outcome of the G20 is viewed by the foreign exchange market (Read more about international currency trading. )s.

The possibility of an all-out currency war that could, in
turn, have triggered greater protectionism and further weighed
on global growth, seems to have been averted for now, which
could embolden investors to take on more risk at the expense of
perceived safe havens such as gold (XAU=: ).

QE2 IN FOCUS

But the prospect of mass-scale bond purchases that most
expect the U.S. Federal Reserve to detail at its next policy
meeting on Nov. 2 and 3 could prove a more powerful driving
force for the markets.

“There are fundamentals of supply and demand in various of
these base metals, but what’s really driving the markets these
days is what the dollar is doing,” said Gary Mead, an analyst
with Virtual Metals.

“I’m afraid I take a rather dim view of these meetings
anyway. I think they are generally quite promising … and then
don’t translate into any hard action,” he said. “Everybody
expects … the U.S. to do its second round of quantitative
easing, so the question is to what extent that expectation is
going to drive things, much more than what the G20 says.”

Gold is now around 4.5 percent below the record high struck
at $1,387.10 an ounce on Oct. 14 after the U.S. dollar rose last
week for the first time in five weeks. [FRX/]

Yet the price is still on track for a 21 percent gain this
year, largely as a result of investor concern over the European
sovereign debt crisis, slowing U.S. growth and the risk of
China’s economy (Read more about the fastest growing economy.) overheating.

The gold price (XAU=: ) ended last week with a 2.3 percent
loss, marking its first week of decline since early August as
the strength in the dollar eroded investor appetite for
non-yielding assets and other dollar-priced commodities.
Virtual Metals’ Mead said copper (CMCU3: ) could build on
Friday’s gains, supported by evidence of demand continuing to
outpace supply. This tighter fundamental backdrop coupled with
the recent weakness in the dollar has pushed London Metal
Exchange copper futures to their highest in over two years.

Three-months LME copper futures ended last week with a 0.8
percent loss at $8,334 a tonne.

NOD TO EMERGING POWER

At the meeting in South Korea, G20 finance ministers
recognised the quickening shift in economic power away from
Western nations by inking a surprise deal to give emerging
nations a bigger voice in the International Monetary Fund.

Raw materials such as copper and oil depend heavily on
demand from emerging economies, and in particular China, the
world’s top consumer of a number of key commodities.

“There was not that much expected out of it. There was
always a risk of it bringing a surprise and they managed to
provide a surprise with the IMF (two seats),” said Olivier
Jakob, an analyst with Petromatrix.

“That’s a surprise, but it does not really do anything to
trading the dollar next week,” he said, adding: “Oil market
supply and demand are relatively well-balanced. It’s going to be
difficult for crude oil to move higher if there is not continued
support from the correlation with the dollar.”

International benchmark U.S. crude oil has traded in a
mostly $70-$85 range all year. It began rising towards the top
of that range in September and this month hit five-month highs
above $84 a barrel in response to expectations of further
quantitative easing and a falling dollar.

Analysts say without the dollar effect, the market would
have been under pressure from high levels of inventory in the
United States, the world’s biggest oil burner.
(Editing by David Cowell)

COMMODITIES-G20 nod to FX may help risk assets but Fed still key