Possible rate hike pushes loonie higher
TORONTO — The loonie shot up following fresh signals from the Bank of Canada that it’s giving more thought to raising interest rates, while Toronto’s main stock index continued its second day of declines.
The Canadian dollar was up one U.S. cent to an average trading price of 75.54 cents US — its highest level since late February — following comments by Bank of Canada governor Stephen Poloz that the economy is gathering momentum.
Poloz told the CBC in an interview broadcast Tuesday that rate cuts introduced by the bank amid the oil-price slump have done their job.
His remarks come a day after senior deputy governor Carolyn Wilkins, the bank’s second-highest ranking official, indicated the central bank is assessing whether the considerable stimulus from the low rates is still required.
Analysts say these comments suggest the Bank of Canada is beginning to assess when, not if, it might introduce its first rate increase in nearly seven years.
But Allan Small, a senior adviser at Hollis Wealth, questions the logic of making any rate increases in the near term.
“We’re finally seeing the fruits of that lower dollar coming right now,” Small said. “Exports are doing better, manufacturing is doing better. I think it’s in the best interest of investors and Mr. Poloz that the dollar remain weaker versus the U.S. dollar.”
Meanwhile, south of the border it seems a foregone conclusion that the U.S. Federal Reserve, which started its two-day meeting on Tuesday, will announce that it will raise interest rates for the third time since December. Very low unemployment, gains in factory output and other economic data pointing to a recovery in the U.S. economy have led investors to believe that the central bank will lift rates.
U.S. stocks also changed course Tuesday as investors put an end to a two-day drop for technology companies.
Tech stocks, which have far outpaced the market this year, slumped on Friday and Monday as investors shifted money into sectors that have lagged.
“I would have been very surprised if this tech sell-off were to continue over many days,” said Small.
“Tech has gotten a little ahead of itself, especially some of the high flyers like the Amazons or maybe the Netflixes of the world where their multiples are just extremely, extremely high. However, I think overall to sell off all tech, to paint all tech with the same brush, is not correct.”
In New York, the Dow Jones industrial gained 92.80 points at 21,328.47 and the S&P 500 index rose 10.96 points to 2,440.35, both record highs. The Nasdaq composite index climbed 44.91 points to 6,220.37.
On Bay Street, the Toronto Stock Exchange’s S&P/TSX composite index edged down 4.05 points to 15,379.75, with base metals leading decliners.
In commodities, the July crude contract was up 38 cents at US$46.46 per barrel and the July natural gas contract declined six cents at US$2.97 per mmBTU. The August gold contract gave back 30 cents to $1,268.60 an ounce and the July copper contract dropped two cents at $2.60 a pound.
The Canadian Association of Petroleum Producers expects oil production to climb 33 per cent by 2030 even as pipeline constraints and competition for investment threaten to slow future growth.
The forecast calls for Canadian crude oil production to reach 5.12 million barrels per day by 2030, up from last year’s projection that output would hit 4.93 million bpd.
CAPP said the crude supply will grow by five per cent per year to 2020, but slow to two per cent growth as major oilsands projects wrap up and new investments are hampered by market uncertainties.