The commodity dollars may do poorly in the New Year. Already, the strong Aussie theme has worn rather thin, even as complacency reached new extremes. As the most overvalued of the major currencies, one cannot help but wonder how quickly the currency’s fortunes could reverse if risk aversion is ever “allowed” to return by the market-manipulating central banks. Already, the vast majority of Australian sovereign debt is in foreign hands and the country has an enormous accumulated current account deficit – a position it shares with its smaller neighbour to the south, New Zealand. Any move that spooks foreign investors could spell significant downside and volatility.

Canada’s position is far better than either Australia’s or New Zealand’s, but the recent years of “forced” easy monetary policy means that the private debt position and housing bubble in Canada have spiralled to extremes that can only mean an ugly hangover going forward, particularly given the damage that a too-strong currency has done to Canada’s manufacturing base. If US demand weakens in the New Year and global economic growth underperforms, CAD could weaken broadly.