I mention this in my upcoming Market View video, but it deserves a little more attention: Avery Shenfeld, chief economist at CIBC World Markets has an interesting contrarian view on the U.S. dollar and commodity prices.
Commodities - particularly gold - have been on a tear because of weakness in the U.S. dollar. Even as the greenback falls to par against the Canadian dollar, many observers believes there is more weakness ahead as the Federal Reserve floods the market with dollars in an attempt to drive down borrowing costs and nudge the rate of inflation higher.
But Mr. Shenfeld think the selloff in the U.S. dollar is overdone, and sees the Canadian dollar correcting to abut 93 cents (U.S.) by next spring. This is partly because the U.S. isn't the only country expanding its money supply: The euro zone's money supply has been expanding at a similar pace and Canada's money supply has actually been expanding faster.
Therefore, the currency market's response to the Fed's quantitative easing program might be overdone, setting up the Canadian dollar (and other currencies) for a correction. And as the U.S. dollar recovers, commodity prices will fall.
"While there has been some support from decent growth indicators out of China, most of the upswing in oil, copper and, of course, gold, has been simply the mirror image of the weak dollar as quantitative easing talk took hold," Mr. Shenfeld said in a note. "If, as we expect, the winter sees a correction in the U.S. dollar's favour, don't be surprised if a bit of the wind is taken out of the commodity ship's sails as well."