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%, 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 US77.54¢, up 0.74 of a U.S. 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 2% in the S&P/TSX capped energy index as oil rose and confidence increased that the Trans Mountain pipeline could be built.
However, Kinder Morgan Canada Ltd. stock stumbled again on Wednesday after two banks cut their target share prices in the wake of the company’s deal to sell its biggest current and growth asset.
The Calgary-based company’s shares closed about 1% lower at $16.23, continuing the post-deal trend that saw it close nearly 3% lower at $16.10 on Tuesday. It dipped as low as $15.62 in interday trading Wednesday on the Toronto Stock Exchange.
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 premier-designate 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.”
In New York, the Dow Jones industrial average closed the session up 306.33 points at 24,667.78. The S&P 500 index rose 34.15 points to close at 2,724.01 and the Nasdaq composite index was up 65.86 points at 7,462.45.
The July natural gas contract was down US2¢ at US$2.88 per mmBTU.
The August gold contract ended up US$2.40 to US$1,306.50 an ounce and the July copper contract rose US1¢ to close at US$3.07 a pound.
Canadian Pacific Railway Ltd. closed up $4.38 or 1.82 per cent to $245.39 after the railway and the Teamsters Canada Rail Conference reached an agreement to end a strike hours after it had begun.