Coffee prices rushed higher on Tuesday to a record high and expanded the gains for the fifth straight session amid concerns about supply disruption as production in Brazil and Vietnam takes a hit. 

Brazil, the world’s largest coffee producer, was exposed to a long period of drought and high temperature, which negatively impacted coffee trees, and is expected to crash coffee production in the next season.

Prices

Coffee prices rose 2.5%, or $7.65 today to $311.05 per contract, a record high, with a session-low at $302.9.

A contract equals 100 pounds, which means a ton of coffee now costs $6857.47.

Coffee prices rose 2.6% yesterday, the fourth profit in a row, while rising 6.1% last week, the third weekly profit in a row.

Brazilian Output

Brazilian production was heavily hit by waves of drought and high temperature, which reduced the quality and production of coffee beans. 

It’s estimated that next season’s output will be heavily reduced, as the trees take a long time to recover after the drought. 

Brazilian Inventories 

The US Agricultural Ministry expects coffee beans inventories to amount to 1.2 million bags this season, down 26% from last year.

Vietnamese Output 

Vietnam, the world’s second largest coffee producer, also face headwinds with production due to multiple factors, that include:

Bad weather in many coffee production regions, such as extreme drought and low rainfall.

Reduced arable land due to changes in priorities, as farmers choose other products that are more financially lucrative.

Increased local consumption in Vietnam as demand continues to rise, hurting exports.

All these factors and others will contribute to an expected reduction of Vietnamese coffee exports this year  to 1.4 million tons, compared to 1.78 million tons last year. 

Gold prices fell in European trade on Tuesday on track for the second straight loss, hitting a week low, as the dollar gained ground following Donald Trump’s vows to impose tariffs on Mexico, Canada, and China.

Haven demand declined on gold as well as a ceasefire between Israel and Hezbollah is expected to be announced at any moment now. 

Prices

Gold prices fell 0.75% today to $2605 an ounce, a November 18 low, with a session-high at $2632.

On Monday, gold lost 3.35%, the first loss in six days, and the heftiest since June 7, moving away from three-week highs at $2721.

Gold sustained considerable losses after Scott Bessent’s nomination to the US treasury post.

The Index

The dollar index rose over 0.6% and approached two-year highs against a basket of major rivals.

The gains came as Trump vowed additional tariffs on all imports from China, Mexico, and Canada.

Middle East Truce 

US President Joe Biden and French President Emanuel Macron are expected to announce a ceasefire between Israel and Hezbollah in Lebanon, according to Reuters sources.

US Rates 

Minneapolis Fed President Neil Kashkari said he’s open for another interest rate cut next month. 

Thus the odds of a 0.25% Federal Reserve interest rate cut in December rose from 54% to 56%.

Now investors await the Federal Reserve’s last meeting minutes, in addition to important US GDP growth data to gather more clues. 

SPDR 

Gold holdings at the SPDR Gold Trust rose 1.44 tons yesterday to a total of 879.41 tons, the highest since November 7. 

Euro fell on Tuesday against a basket of major rivals, resuming losses as it tries to recoup from two-year lows, amid mounting pressures due to Donald Trump’s tariff threats. 

US President-elect Donald Trump vowed to raise tariffs by 25% on Canadian and Mexican products, and by 10% on Chinese products, citing concerns about illegal immigration and the drug trade.

Trump also vowed that the EU will pay “a heavy price” for not buying enough American exports.

Pressures from Trump will no doubt add to the risks facing the European economy, which could force the ECB to accelerate the pace of interest rate cuts.

The Price 

The EUR/USD pair fell 0.7% to $1.0425, with a session-high at $1.0500.

The pair closed up 0.8% on Monday, the first profit in five days away from two-year lows at $1.0331.

The pair gained some ground earlier this week after the nomination of Scott Bessent for the post of US treasury secretary.

Trade Tensions 

The euro was pressured by Trump’s proposals of imposing tariffs on European imports, which could lead to a trade war between both sides of the Atlantic. 

Trump is adopting the America First policy, and will likely impose a wide range of tariffs on European products, including cars.

Euro has already lost 4.5% of its value against the dollar since Trump’s landslide election victory earlier this month.

European Rates

A batch of recent eurozone data showed considerable weakness in both manufacturing and services in the fourth quarter of the year. 

As risks mount, the odds of another 0.25% interest rate cut by the ECB in December increased to 95%.

The markets now even expect a 59% chance of a heavier 0.5% rate cut by the ECB in December.

The yuan lost ground in Asian trade on Tuesday to four-month lows against the US dollar, resuming losses after US President-elect Donald Trump vowed a 10% additional tariff on Chinese imports.

The impending escalation in US-China trade tensions led many global investment banks to reduce their forecasts for the yuan, in a time when China already faces considerable issues at home.

The Price

The US dollar rose 0.4% against the Chinese yuan to 7.2725, the highest since July 31, with a session-low at 7.2435.

The yuan closed up 0.2% on Monday against the dollar, the first profit in five sessions, after Scott Bessent’s nomination to the US treasury post.

The yuan lost 0.35% last week against the dollar, the sixth weekly loss in a row, marking the longest such weekly losing streak since May following a stream of weak data.

Tariffs

US President-elect Donald Trump vowed to raise tariffs by 25% on Canadian and Mexican products, and by 10% on Chinese products, citing concerns about illegal immigration and the drug trade.

Such a step would no doubt shock the market and weigh heavily on Chinese assets, especially exporting corporations. 

Trump has previously gone as far as promising a 60% tariff on Chinese imports, so it still remains to be seen what his actual intent and ceiling is. 

Yuan’s Previous Reactions 

During Donald Trump’s first term, yuan weakened by 5% against the dollar following the first round of US tariffs on Chinese commodities in 2018, with another 1.5% drop a year later as trade tensions grew.

Grim Outlook

Now investment banks expect yuan to fall by at least 1.5% to 7.3 against the dollar by the end of 2025.

Citibank’s analysts estimate that a 10-15% US tariff on Chinese imports would weaken the yuan by 1.5-2% at least.

A more aggressive 60% tariffs by Trump would lead to further uncertainty and struggle for China’s currency and the exporting industry.