Hawkish Fed a headwind for commodity prices

The US Fed announced at its meeting this week that it will “soon be appropriate” to raise interest rates and hinted that a hike was coming as soon as March. The US dollar strengthened, with the DXY index hitting an 18-month high of over 97, which weighed on US dollar-denominated commodity prices. We expect the dollar to appreciate even more this year and the DXY to surpass 100, representing a headwind for commodity prices generally. Meanwhile, US steel and lumber prices plunged as higher US mortgage rates are likely to lead to lower housing and construction demand. Turning to next week, the main event will be the OPEC+ meeting on Wednesday, where we expect the group to schedule another 400,000 bpd increase in crude oil production in March. With that said, we wouldn’t completely rule out a larger increase, given high oil prices and recent OPEC+ underproduction. Elsewhere, markets will also be watching how Russia reacts to the US and NATO’s written responses to its demands. Any aggressive pushback could cause prices of energy and energy-intensive commodities to rise.