The Bank of Canada’s more dovish outlook Wednesday drove the loonie to a near four-month low and helped to pull the Toronto stock market down from its record high.
The Canadian dollar traded at an average of 74.21 cents US, the lowest level since Jan. 3 and compared with an average of 74.51 cents US on Tuesday.
The move followed the central banks’ latest interest rate announcement to keep its key interest rate target on hold at 1.75 per cent.
Much of what it announced was expected, but it surprised some by dropping any mention of future rate hikes, said Candice Bangsund, portfolio manager for Fiera Capital.
“The growth forecasts were much more bearish than what the market was expecting so taken together the dismal outlook for the Canadian economy and the fact that they abandoned their plans to raise interest rates of course weighed on the Canadian dollar…and on Canadian financials,” she said in an interview.
The Toronto stock market’s heavyweight financials sector fell 0.86 per cent led by the Royal Bank of Canada as bank profitability would be constrained without any move to increase net interest margins.
The energy sector decreased 2.3 per cent as oil prices fell following a weekly report pointing to U.S. crude inventories growing 5.5 million barrels last week, far exceeding analyst forecasts. Shares of several large Canadian energy companies decreased, led by Crescent Point Energy Corp. and Suncor Energy Inc., which dropped 5.6 and 3.5 per cent respectively.
The June crude contract was down 41 cents at US$65.89 per barrel and the June natural gas contract was up 0.1 of a cent at US$2.50 per mmBTU.
The June gold contract was up US$6.20 at US$1,279.40 an ounce and the May copper contract was up 1.65 cents at US$2.91 a pound.
Industrials trailed only the cannabis-heavy health care sector in gaining 0.55 per cent as Transat AT., Bombardier Inc. and Canadian Pacific Railway increased. The Calgary-based railway’s shares were up 2.7 per cent on the day despite missing analyst expectations Tuesday after markets closed.
“While they may have had a tough quarter last quarter, the outlook longer-term looks fairly bright,” said Bangsund.
Overall, the S&P/TSX composite index closed down 82.88 points to 16,586.52 after reaching an intraday high or 16,666.04. That was just shy of an all-time high and record close on Tuesday.
In New York, the S&P 500 and Nasdaq also dropped from their record high closings. The S&P 500 index was down 6.43 points at 2,927.25, while the Nasdaq composite was down 18.81 points to 8,102.01. The Dow Jones industrial average was down 59.34 points at 26,597.05.
Bangsund said investors were taking a “breather” after a strong rally so far this year because they’re uncertain how much upside remains in equity markets.
“Up until today the increase has been driven by that whole trend of fear of missing out,” she said.
“After hitting record highs last night at the close, investors probably are just taking a step back to contemplate how much more upside there is from here after such a strong run-up.”
She expects that the U.S. economy is going to improve in the second quarter, pushing central banks to consider raising interest rates later in the year.
“The forward looking outlook for the U.S. remains quite constructive in our view and we expect the economy to rebound in the second quarter and we see the same sort of backdrop for the Canadian economy, so we should see these moves in interest rates reverse course and allow interest rates to move higher again.”