US Dollar Weakness and Bargain Buying Lift ICE Cotton: Can the Rally Last?

76.09 cents per pound—that was the two-week low touched by ICE December cotton on June 25. By the close, the contract had rebounded to 76.97 cents, up 0.93%. The shift from selling to buying was not driven by a fundamental change, but by a short-term convergence of a weaker US dollar and bargain hunting.

Dollar Pause and Speculative Positioning

The US dollar index fell on June 25 after three consecutive days of gains, following US economic data including inflation that tempered expectations for Fed rate hikes this year. A softer dollar makes dollar-denominated cotton cheaper for overseas buyers, theoretically supporting export demand.

More directly, speculative funds adjusted positions after the previous day's sharp sell-off. StoneX's senior vice president noted that the sell-off triggered technical oversold conditions, prompting some funds to step in near the 76-cent support level. This rebound is more a capital-driven response to a psychological support level than a signal of recovering end-user demand.

Oil Price Linkage and Substitution Effect

Crude oil rose over 2% on the same day, fueled by renewed Middle East tensions after a vessel was attacked near Oman, prompting the International Maritime Organization to suspend ship evacuations in the Strait of Hormuz. Higher oil prices increase the cost of polyester fiber, which competes with cotton, indirectly supporting cotton's price competitiveness.

This logic works in the short term, but the price spread between polyester and cotton is currently near historical lows, weakening the substitution elasticity. Oil's marginal impact on cotton prices may be less pronounced than in previous years.

Export Data Sound the Alarm

Contrasting with the short-term price rebound, the USDA's weekly export sales report released on the same day showed net sales of 83,864 running bales for the current marketing year, down 53% from the prior week and 61% below the four-week average. Forward sales for the next marketing year were 67,089 bales, also well below market expectations.

Shipments rose 20% week-on-week but remained at low levels year-on-year. Shipments to China were only 12,248 bales, with no signs of large-scale restocking. This suggests that global textile demand has yet to recover substantially, and cotton prices lack sustained support from the consumption side.

Procurement Window and Risks for the Supply Chain

For textile mills, the current 76-77 cents/lb range is relatively low for the year. However, weak export data means the upside is limited, and chasing prices carries risks.

• Short-term support lies near 76 cents; a break below could test the 75-cent level.
• Resistance is at 78-79 cents, requiring improved export data or further dollar weakness to break through.
• Geopolitical factors—Middle East tensions and US-China trade policy—remain unpredictable variables.

Practical Recommendations

For Buyers - If mills have immediate replenishment needs, build positions in batches within the 76-77 cent range to avoid overexposure at a single price point. - Watch the USDA's July World Agricultural Supply and Demand Estimates report; if US production estimates rise or export forecasts are lowered, wait for lower entry prices. - Use options to lock in costs, such as buying put options to hedge against downside price risk.

For Exporters - When signing long-term contracts with overseas clients, adopt floating pricing or batch price-lock mechanisms to prevent single-direction price swings from eroding margins. - Closely monitor China's cotton procurement pace; if China increases import quotas or initiates state reserve purchases, it will provide a price floor. - Keep an eye on the RMB exchange rate; a weaker dollar reduces the renminbi cost of imported cotton.