How a weak US dollar is fueling metal sector growth

Did you notice that while most Indian sectoral indices, along with the major indices were either falling or sluggish, one sector stood out by surging 8.6% in the first week of March? That's right! The Metal index took the spotlight! While many sectors have been struggling with a weaker dollar, the metal sector is actually benefiting from it. So far this month, NIFTY Metal index has surged over 11%.

Why so?

Historically, mostly when the dollar has weakened, metal prices have risen, and vice versa. This is because metals like steel and gold are priced in US dollars. So, when the dollar falls, these metals become cheaper for foreign buyers, which boosts demand. Lets see it through a co-relation chart of Nifty Metal Index and Dollar Index, where Nifty Metal index is representing the metal prices.

Why the Dollar Index is falling?

The Dollar Index (DXY), an indicator of the US dollar's strength against a basket of major currencies, has been on a decline. The currency reversed its course in mid-January 2025 and dropped over 6%, which is a significant change. This shift has been caused by a mix of factors, like tariffs on imports from other countries under Donald Trump’s presidency, and growing fears that the US might be heading into a recession. The US stock markets have also seen a dip, with major indices down by 9-15% from their highs. All of this puts extra pressure on the US dollar.

To provide some context on the movement of Dollar: From September 2024 to January 2025, the Dollar Index was actually climbing. It rose from 100 to 110 in Mid-January. It was fueled by a strong US economy, growing GDP, and foreign investments.

However, this came with its own problems. It meant higher costs for consumers in the US due to higher and prolonged tariffs and possible higher interest rates. These issues, combined with the uncertainty about the economy, have now weakened the dollar.

Considering the monthly chart, the Dollar Index is trading in a channel pattern. The index reversed sharply from the resistance line of the channel during January 2025. It saw a correction of more than 6% from its recent peak. The recent monthly candle is a large bearish candle, tapering southwards, indicating a continuation of the weakness.

Lets see the movement of Nifty Metal Index and the related stocks:

Recently, it was observed that while the Dollar Index saw a sharp correction, the Nifty Metal Index reversed from its multiple supports. The index has formed a strong bullish reversal candle on the monthly timeframe. It was likely the biggest positive move in March among most sectoral indices and even Nifty. If this trend continues, metal stocks could perform well in the near future. The weekly charts also show a breakout after 7 weeks of consolidation, indicating some strength.

There are few other factors that have contributed to a metal index boom:

In 2025, India continues to impose and review anti-dumping duties on cheap steel imports from China. The government has considered imposing a 15% safeguard duty and is investigating dumping practices.

The Chinese economy is expected to witness a revival, considering the policy measures the government is undertaking to boost economic consumption, which is expected to accelerate demand for Indian metals. Domestic infrastructure development and government spending on infrastructure are expected to boost metal prices.

Tata Steel:

Hindalco:

The aluminium giant, which holds almost 16% weight in the Nifty Metal Index, has initiated its second consecutive monthly gain in March. The stock had fallen for four straight months, starting in October 2024. It formed a double bottom taking support twice near the 560 level in January and February and ended in the green for the first time. March continued the positive trend.

JSW Steel: