After declining for three consecutive months, the Bank of Nova Scotia’s commodity price index edged up by 0.3% month-over-month in September. Overall commodity prices remain 8.5% above a year earlier.

The index measures price trends in 32 of Canada’s major exports.

“The agricultural index led the rebound in September, surging 6.7% month-over-month, alongside soaring prices for wheat, barley and canola,” says Patricia Mohr, vp, economics and commodity market specialist at Scotiabank.

The oil and gas index also inched ahead in September, as strong rallies in Edmonton light crude oil and propane prices more than offset further slippage in Canadian natural gas export prices. Scotiabank says the oil and gas index will strengthen further in coming months.

“We have increased our price forecast for WTI oil to an average of US$71 in 2007 and US$79 in 2008 – close to the US$80 mark,” says Mohr.

Gains in agriculture and energy were offset in September by a further edging down in the metal and mineral Index, as a mixed performance in base metals and lower spot uranium prices just countered stronger precious metal and potash prices. Meanwhile, U.S. dollar weakness spurred gold prices and renewed interest by investment funds in commodities as an asset class.

“The Federal Reserve Board will likely ease monetary policy further over the next six months to preempt any dramatic slowdown in the U.S. economy, linked to tightening lending standards and falling home prices,” adds Mohr. “

The U.S. Federal Reserve Board is likely to cut the fed funds rate another three times, while European interests hold steady, says Mohr. “In this environment, the U.S. dollar will weaken further, with gold likely to reach US$800 in 2008,” she says.