The US dollar index, after three consecutive sessions of gains, fell back, directly impacting the international cotton futures market. The ICE December contract touched a two-week low of 76.09 cents per pound during the session on June 25 before rebounding to settle at 76.97 cents, a daily gain of 0.93%. From a capital flow perspective, technical buying emerged after the previous sharp sell-off, with speculative funds re-entering at lower levels, providing short-term price support.
Macro Factors: The Dollar and Oil Linkage
A softer dollar is a direct positive for dollar-denominated cotton commodities. For overseas buyers holding non-dollar currencies, a weaker dollar means lower actual procurement costs, which to some extent stimulates inquiry interest from traders and mills. However, it should be noted that this dollar pullback is more due to US inflation data coming in below expectations, weakening market expectations for a Fed rate hike this year, rather than a trend reversal. Therefore, its support for cotton prices may be limited.
Meanwhile, geopolitical risks in the Middle East have re-emerged. An attack on a cargo ship near Oman raised concerns about navigation safety in the Strait of Hormuz, pushing international oil prices up about 2% on the day. There is a substitution relationship between crude oil and cotton—polyester fiber, a direct competitor to cotton, becomes relatively more expensive when oil prices rise, enhancing cotton's competitiveness. This substitution effect is more significant when oil prices remain high, but for now, the geopolitical impact is more of a short-term emotional shock.
Industry Fundamentals: Export Data Reveals Real Demand
In contrast to the short-term positive macro factors, the industry fundamentals are sending bearish signals. The latest USDA export sales report shows that for the week ending June 18, net sales of current-crop upland cotton were only 83,864 bales, down 53% from the previous week and 61% below the four-week average. Next-crop sales were 67,089 bales, also at a low level. Although shipments increased 20% week over week, shipments to China were only 12,248 bales, indicating a significant slowdown in Chinese buying.
What does this data mean? From an industry chain perspective, downstream mills and traders are reluctant to buy at current levels, suggesting inventory digestion may be slower than expected. China, as the world's largest cotton importer, its procurement contraction directly limits the upside for international cotton prices. The short-term rebound is more of a technical correction and macro-driven sentiment, lacking sustained support from actual orders.
Market Outlook and Operational Suggestions
Overall, the current cotton market is in a state of mixed bullish and bearish factors. A weaker dollar and higher oil prices provide short-term trading opportunities, but weak export data indicates demand has not yet materially recovered. For industry participants, the rebound should not be seen as a trend reversal but rather a window for adjusting inventory and hedging strategies.