Montreal, Canada

For the most part, the world's leading natural resource economies sport expensive currencies vis-à-vis the U.S. dollar and are now heavily overbought on a short-term basis. Investors considering placing new money into these markets should wait for a correction. If oil prices or industrial metals suffer a serious decline then resource currencies will follow commodities markets down. And, judging by the momentum in oil and the base metals, a serious swoon lies ahead. The summer is usually the worst time of year based on seasonality trends for raw materials.

As the U.S. Dollar Index has gained almost 9% since November 30th most natural resource currencies have rallied. That's no surprise considering their much healthier state of budget and trade balances and domestic banking systems. The Dollar Index holds more than 50% against the EUR – the weakest major currency in the world over the past five months. But while the U.S. dollar has been strong lately is hasn't been rising against the Canadian dollar and the Australian dollar.

Earlier this week the Reserve Bank of Australia raised interest rates again. The Norges Bank in Oslo has already hiked lending rates since 2009 and The Bank of Canada is expected to tighten this summer. Brazil will also tighten shortly.

Everyone is bullish on Canada, Australia, Norway and Brazil since 2007, with piles of money still flowing into these countries. Brazil slapped a foreign tax on capital in 2009 to stem the bustling inflows of cash pouring into the country but the stock market and the real currency have remained strong.

However, it's important to distinguish between which resource currencies are healthiest and which ones aren't.

The only major economy in the world with a positive trade balance and a positive budget balance remains Norway. It's the only country that deserves a AAA credit rating in my book.

The Norwegians harbor a budget balance that's equal to 10% of GDP, or gross domestic product; nobody has a similar ratio – not the Germans and not the Swiss. In Norway, they have oil and gas to be thankful for. If oil prices collapsed I doubt the Norwegians would still have a strong currency.

The Brazilians have a rocking trade balance that's in surplus but are struggling with a modest budget deficit that's equal to 3.2% of GDP. Still, that's a relatively tiny number and the markets won't punish Brazil any time soon.

The Australians have China to thank for booming exports. But that's where the good news ends. Australia still struggles with a negative trade balance – despite massive commodity exports to China and Asia – and continues to wrestle with a small budget deficit that's 3.6% of GDP. Still, in a world littered with high deficits – especially in the West – that's a puny figure.

Canada has been red-hot lately. The loonie is at par with the U.S. dollar again and, despite significant trade ties with an ailing America, the Canadian economy is resilient. Housing prices are booming and retail sales remain buoyant. Canada sports small deficits relative to the size of the economy; its trade balance, which slipped into deficit last year, stands at 3.4% of GDP and the budget deficit at just 2.4% of GDP. For years, Canada ran consecutive budget surpluses until the global financial crisis.

Western Canada is primarily driving our growth because of commodities while manufacturing belts in Ontario and Quebec continue to struggle with an expensive currency. If you stripped energy exports from the trade picture I'm not so sure investors would still find Canada an attractive destination.

Canada is still a primary recipient of global asset allocation changes whereby investors are funding those countries with surpluses or small trade deficits combined with low external debt ratios. Australia, Norway and Brazil fall in the same camp. Banking systems in all four countries also largely escaped the credit crisis and have therefore been rewarded by huge foreign inflows by portfolio managers.

For now, all that glitters isn't only gold. The best resource currencies are shining bright and, unlike gold, pay interest income. But they are heavily tied to the global commodity cycle and to the events unfolding in China, which has never suffered a recession in the last twenty years.

I'm still buying Norwegian kroner but would avoid putting new money into other resource currencies at this time. A major correction lies ahead offering new and existing investors a better buying opportunity – probably triggered by a commodity spill.

I'm off to Switzerland, Austria and France tomorrow morning. Dugald will share his views on technical market trends on Friday and Monday. See you on Tuesday from Zurich.