Oil closing in on $US84 a barrel is obviously a bigger threat to the profits of Wall Street and other traders than the lingering after shocks of the US Federal Reserve’s 0.50% rate cut this week.

Thanks to another Gulf of Mexico storm, oil jumped to $US83.90 a barrel in New York before settling back at $US83.32 (a record close). With the US dollar continuing to tank and US 10 year bond yields rising yet again, the investor fancy turned back to inflation and down went the Dow and other major indices.

That was after profit taking in Europe saw markets there fall. The afterglow from the Fed cut has gone, especially with chairman, Ben Bernanke telling the US Congress overnight that things will get worse before they get better. He told Congress: “The resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans.”

Mr Bernanke warned that delinquencies and foreclosures in the subprime mortgage market were likely to rise further as the housing downturn evolves. But he also said that the global financial system is in a relatively strong position to work through this process.

Remember that two months ago Bernanke told Congress losses on subprime mortgages could be $US50 billion to $US100 billion. The $US100 billion was the “pessimistic” end of the forecast. I wonder where that is now.

Gold hit a new 27 year high in New York of $US739.90 an ounce: it has risen 11.7% in the past month. Nickel is up 25% and copper up 11.6% (which is why BHP is trading over $40 a share) and oil is up 17% in the same time.

In fact the most notable “event” in markets overnight was the Canadian dollar, nicknamed The Loonie (because of the use of the Loon on the $C1 coin), do something it hasn’t done since Pierre Trudeau was in power 31 years ago: it hit parity against the US, eased and then rose again.

Like the Australian dollar, which rose to around $US86.20 overnight, up 3 USc this week, the Canadian dollar has been chased by investors because of its strong resource base, especially hydrocarbons, and its financial position is stronger than ours: their trade position is in surplus.

The US dollar fell to yet another low against the euro and investors are now becoming concerned countries like China, Japan, Taiwan, Saudi Arabia and the Gulf states will start selling US dollars and switching into better yielding currencies. Indeed, there was a brief flurry when Saudi Arabia didn’t cut its interest rate like the rest of the Gulf did overnight in tune with the Fed cut.