Very interesting, thank you.
As to GBPCAD, I notice this. Two things happened on May 10: the BofE put rates up .25%, and Tony Blair announced the date he would step down. The market hardly noticed the rate change, but Blair's announcement seems to have made GBP nosedive. It means (a) political uncertainty (b) Gordon Brown will become PM, policies unclear but somewhat to the left of Blair, and (c) someone else will become Chancellor, again policies unclear.
Also Brown is not a very popular figure, and David Cameron is, so likely a Tory win in the next election, and it's one of the paradoxes of British politics (or anybody's politics) that to grab the centre vote the left has to say rightish things and the right has to say leftish things.
So if it's all about political uncertainty and fear of soft policies, we can expect continued downward pressure on GBPCAD, perhaps getting down to last year's lows around 2.02 or below. At any rate, I've shorted a bunch at 2.1520, and we'll see how it goes. I've put a long trailing stop on it (100 pips), which I'll tighten if/as we move into solidly profitable territory.
Another thing is that the UK doesn't import oil from Canada (in fact I believe it's still a net oil exporter), but it does import base metals, and those are still going strong. The UK also has a per capita trade deficit about the same size as the US's, and strong growth in a net import economy tends to make the deficit bigger. Hence more downward pressure on GBP. I think the recent rise to 2.34 (and the rise of GBPUSD to over 2.01) was pricing in a series of expected rate increases, and with the changing of the guard, and CPI moderating towards the 2% target all by itself, they may not happen. When inflation is much over target (2.8%, latest) BofE has to explain itself to the Chancellor - and they don't yet know who that is or what he'll want; in any case Brown is now a lame duck, so the bureaucrat's instinct to do nothing is likely to prevail.
I still expect a strong rebound in USDCAD, but perhaps not until the effects of the high loonie become visible in the economic data - maybe repeating last year's pattern of staying in the doldrums through May and June, then a short rally in July and a strong comeback in Q4.
I think Dodge would be crazy to raise rates at this point: he can let the high loonie do the work of cooling the economy for him. But Bernanke has to stand pat too, so no change there in the foreseeable. Bernanke seems more worried about housing and its possible recessionary effects than about inflation, yet inflation is still too high for a cut to be in the cards.
I still expect oil to drop back to historically normal (rather than hysterically abnormal) levels over the next few years. Fact: Oil tends to be pumped in politically unstable areas, so there's always some business in Nigeria or the Middle East or someplace that the oil bulls can seize on, but it's all BS. Check out the effects of the actual Iraq war (as opposed to the faltering peacekeeping/reconstruction effort that people call the "war in Iraq") on oil prices in 2003. Nothing. Nada. Zippo. But people who want to wish prices up seize on non-events like the Israel-Hezbollah war or Iran kidnapping some British sailors or whatever the hell is going on in Nigeria and start buying up oil.
It's like expecting global shipping to be disrupted because there was a storm somewhere. Plain silly.
Base metals have to pop real soon now.
