Scotiabank’s commodity price index advanced 4.9% month over month in July, with broad-based strength across all major segments. However, weakness is expected for the U.S. dollar.

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“We remain bearish [on the dollar] through [the] end [of] 2018 as the market outlook for U.S. interest rates continues to move lower,” says the report. “Movements in the relative value of the USD have a one-and-done effect on commodity prices as they adjust to reflect the level that consumers are willing to pay in all currencies — though gradual USD declines will create the mirage of a steady tailwind.”

Outlook for oil, metals

(All prices below are in U.S dollars.)

Oil prices remain anchored at $45 to $50 per barrel (WTI) as the market waits for concrete signs that demand is finally outpacing supply after nearly three years of sustained surplus. Prices are expected to move above $50 per barrel through the latter half of 2017.

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Metal prices have benefited from China’s shocks to both supply and demand.

For example, strong economic activity in the first half of the year came on the back of stimulus-induced upswings in manufacturing and construction, increasing the demand for heavy commodities like steel and copper.

At the same time, Beijing is reducing available supply by pushing ahead with plans to cut excess domestic production capacity, which has weighed on profitability and exacerbated debt loads in an industry dominated by state-owned players.

Going forward, “we expect stimulus to fade later this year, and industrial metals to fall in sympathy, though some will continue to rise on supply-side considerations,” says the report.

Metals highlights:

  • Iron ore prices are expected to fall to about $55 per tonne by Q4 of 2017, facilitating the needed contraction of low-quality Chinese production as Australia and Brazil ramp up high-quality capacity.
  • Metallurgical coal prices are expected to fall to about $125 per tonne, driven down by ample seaborne supply.
  • Zinc’s outlook remains strong, even though prices may temporarily fall in sympathy with the broader metals market.
  • Aluminum’s outlook is more uncertain given rapidly changing supply expectations in China. Prices jumped to a nearly three-year high in mid-August following reports of significant Chinese smelting capacity closures.

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Read the full commodity price index.