Interest rate decision takes bite out of loonie

TORONTO — The Toronto stock index dipped into the red as plunging oil prices outweighed gains in financials on Wednesday, while the loonie fell nearly half a cent following the Bank of Canada’s latest decision to keep interest rates on hold.

The S&P/TSX composite index was down 6.90 points to 15908.78. Gains by several of Canada’s biggest lenders — including the Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada — weren’t enough to compensate for a nosediving energy sector, which was down more than two per cent at the closing of markets.

The January crude contract tumbled $1.66 to $55.96 US per barrel, a sharp decline that Allan Small, senior investment adviser at HollisWealth, partially attributed to “artificially” inflated prices based on OPEC and non-OPEC members’ manipulation of production levels.

The Organization of the Petroleum Exporting Countries cartel and a group of allied oil-producing nations agreed last week to extend crude output cuts until the end of next year, continuing a policy that led to a significant rise in the price of oil over the past year.

“If they were producing at normal rates, the price of oil would probably be around $35 to $40 US,” Small said. “But obviously, they’re cutting back and trying to keep the price of oil higher.”

“Meanwhile, the United States is producing at record levels,” he added.

South of the border, American markets — which had held steady for most of Wednesday following drops for markets around the world — finished the trading session mixed.

In New York, the Dow Jones industrial average fell 39.73 points to 24140.91. The S&P 500 index was down 0.30 of a point to 2629.27 and the Nasdaq composite index was up 14.03 points to 6776.24.

In currency markets, the Canadian dollar closed at an average trading price of 78.39 cents US, down 0.47 of a U.S. cent after the Bank of Canada stuck with its trend-setting interest rate Wednesday — but it offered fresh, yet cautious, warnings to Canadians that increases are likely on the way.

Elsewhere in commodities, the January natural gas contract was up one cent at $2.92 per mmBTU, the February gold contract added $1.20 to $1,266.10 US an ounce and the March copper contract was up two cents to $2.96 US a pound.