TSX, loonie rise as B of C holds interest rates

The energy sector helped Canada’s main stock index close higher Wednesday, while the loonie soared after the latest rate announcement by the Bank of Canada.

The Canadian central bank kept its key interest rate on hold at 1.25 per cent, but its comments increased market expectations that it would raise the rate in July, said Allan Small, a senior investment adviser at HollisWealth.

“They did not raise rates this go round, but they basically gave an indication or at least a hint that they still believe that they need to raise interest rates in the future to combat an economy that’s heating up, to combat the fear of inflation.”

The Canadian dollar averaged 77.54 cents US, up 0.74 of a US cent.

The Bank of Canada’s next scheduled interest rate decision is set for July 11 when it will also update its outlook for the economy and inflation in its monetary policy report.

Crude prices also rose, which generally tends to help the commodity-tied loonie, after speculation on Russia and OPEC countries increasing oil production eased in a continued back and forth.

The July crude contract closed US$1.48 higher at US$68.21 per barrel, but price movements based on political commentary isn’t especially reliable, said Small.

“These short-term blips caused by political commentary are hard to predict, and hard to trade around really.”

The S&P/TSX composite index closed up 126.05 points at 16,048.66, led by gains of more than two per cent in the S&P/TSX capped energy index as oil rose and confidence increased that the Trans Mountain pipeline could be built.

U.S. markets were rattled Tuesday after concerns that Italy might go back to the polls for an election focused on the euro. On Wednesday premierdesignate Carlo Cottarelli said there were “new possibilities” to form a government, helping ease fears of a new vote and return some confidence in markets, said Small.

“Today those storm clouds that were lingering have gone somewhere else.”