Surprise rate hike gives loonie boost
TORONTO — The loonie closed at its highest level in more than two years as Toronto’s main stock index fell after the Bank of Canada raised its interest rate for the second time in less than two months.
Wednesday’s surprise hike of the central bank’s overnight lending rate to 1.0 per cent comes less than a week after the latest data for economic growth showed an impressive expansion of 4.5 per cent for Canada in the second quarter. The Canadian dollar soared on the news of the rate announcement, moving up 0.71 cents U.S. to an average trading price of 81.54 cents US.
It’s the first time the loonie has closed above 81 cents US since June 26, 2015.
Analysts widely anticipated a second rate hike in the coming months, but the timing of Wednesday’s move came sooner than most had predicted — most experts had expected the bank to wait until its next scheduled rate announcement in October.
On Bay Street, the Toronto Stock Exchange’s S&P/TSX composite index turned negative as investors pared gains in a broad-based decline that saw most sectors finish in the red.
The commodity-heavy TSX dropped a moderate 30.32 points to 15,059.83, but it had been positive before the Bank of Canada’s 10 a.m. ET rate announcement.
“A stronger loonie for many companies is actually a negative. I think we’ve seen that play out in the markets today,” said Allan Small, a senior investment adviser at Holliswealth. “Our country is an exporter. We export about 75 per cent or so, maybe a little more, to the United States of what we pull out of the ground or grow here. So a stronger Canadian dollar does not bode well for our companies that export to the U.S. as well as some of our companies that are multinational.”
South of the border, U.S. stocks recovered some of the market’s hefty losses from the day before after swelling tensions between the United States and North Korea contributed to major sell-offs. In New York, the Dow Jones climbed 54.33 points to 21,807.64, the S&P 500 index added 7.69 points to 2,465.54, and the Nasdaq composite index advanced 17.74 to 6,393.31.
Energy companies led gainers on Wall Street, climbing as the October crude contract rose 50 cents to US$49.16 per barrel.
That marks the fourth trading day in a row in which oil prices have bounced back from levels that were depressed in the wake of Hurricane Harvey last week.
Elsewhere in commodities, the December gold contract lost $5.50 at $1,339.00 an ounce, the October natural gas contract gained three cents to US$3.00 per mmBTU, and the December copper contract increased two cents to US$3.15 a pound.
Warning on debt levels
CALGARY — The Bank of Canada’s second interest rate increase this summer has financial experts warning that more could be on the way, and now is the time for Canadians to take a serious look at their debt.
Patricia White, executive director at Credit Counselling Canada, said years of increased borrowing at low interest rates means many people aren’t prepared for the higher costs that could be coming.
“Everyone needs to look at where they’re at, because we suspect that the Bank of Canada governor is just going to continue to do this.”
White said the growing use of home equity loans and lines of credit means more Canadians are exposed to immediate changes in borrowing rates, while those thinking about buying a home need to take a prudent look at what they can afford to pay.
“The point is people need to get their head out of the sand and take a look at things. We’ve had that nice lull over several years — now reality hits.”