Toronto’s main stock index was relatively flat Thursday as the Canadian dollar climbed modestly following sharp currency market movements on Wednesday.
The loonie was trading at an average price of US78.47¢, up 0.31 of a U.S. cent after it soared almost a full cent Wednesday in the wake of the Bank of Canada’s (BoC) decision to raise its key interest rate for the first time in almost seven years.
That movement came as the S&P/TSX composite index slipped 8.99 points to 15,135, with mining stocks the leading decliners.
“The big story today is that currency markets have taken a pause after the big rally we saw with the loonie yesterday,” said Todd Mattina, chief economist and strategist with Mackenzie Financial Corp. “They’re taking a breather and I think they’re also digesting the bank’s outlook.”
Although the markets had been anticipating a rate increase from the central bank on Wednesday, it was not expecting BoC governor Stephen Poloz to express so much confidence about the move.
“The bank’s optimistic growth forecast really fuelled some speculation that another rate hike was in the pipeline later this year,” said Mattina.
“Markets are pricing in over a 70% chance of a second rate hike by December.”
South of the border, investors had their eye on Washington, D.C., where U.S. Federal Reserve Board chairwoman Janet Yellen was testifying before Congress for the second day. On Wednesday, she raised the possibility that the Fed would consider slowing the pace of its interest rate increases if inflation remained persistently below its target level — remarks that set off a broad market rally the day before.
But on Thursday, Yellen appeared to modify her comments, testifying that she saw the “risk on inflation as being two-sided,” stressing that price gains could both accelerate or slow down.
“The interesting thing about Janet Yellen’s testimony is that she backtracked somewhat from the strong view that was in the Fed’s last policy statement — that underlying inflationary pressure was building,” said Mattina. “Now we’re seeing more uncertainty in Janet Yellen’s outlook.”
In New York, the Dow Jones industrial average gained 20.95 points to 21,553.09. The S&P 500 index inched up 4.58 points to 2,447.83 and the Nasdaq composite index rose 13.27 points to 6,274.44.
In commodities, the August crude contract was up US59¢ to US$46.08 per barrel and the August natural gas contract was down US2¢ at US$2.96 per mmBTU.
The August gold contract fell US$1.80 to US$1,217.30 an ounce and the September copper contract declined US2¢ at US$2.66 a pound.