If the job step is type 'Transact-SQL Script (TSQL)', as in your case, and uses xp_cmdshell then the command will be run by SQL Server and SQL Server will need to run under a Domain Account
If the job step is type 'Operating System Command (CmdExec)' (ie just the xcopy part of the job) then the command will be run by the Agent and the Agent will need to run under a Domain Account
So, it depends on how you wish to run the job/step
Far away is close at hand in the images of elsewhere.
Anon.