Loonie recovers following dovish interest rate hike, Dow soars past 26,000
David Hodges, The Canadian Press
Published Wednesday, January 17, 2018 1:35AM EST
Last Updated Wednesday, January 17, 2018 6:42PM EST
TORONTO -- The loonie rebounded from its earlier losses following the Bank of Canada's dovish interest rate hike announcement Wednesday, as Wall Street soared to new highs.
The Canadian dollar closed at an average trading value of 80.48 cents US, down 0.04 of a U.S. cent, recovering from greater losses earlier in the session after the central bank said it would raise its key interest rate target by a quarter of a percentage point to 1.25 per cent.
While the rate hike was widely expected, investors were initially taken aback by the central bank's cautious tone about future rate hikes.
"Typically when markets are uncertain, a rate hike will lead to a stronger loonie. But in this case the rate hike itself was already reflected in market prices ... so the real question on investors' minds was would the Bank of Canada provide more hawkish guidance about future rate hikes?" said Todd Mattina, a chief economist at Mackenzie Investments.
"In this case the Bank of Canada highlighted a number of reasons why it would be cautious going forward, which led to the market seeing it as a dovish rate hike."
While the central bank signalled more rate increases are likely over time, it noted the unknowns surrounding the future of the North American Free Trade Agreement -- and the potential negatives for Canada -- were casting a widening shadow over its outlook.
The bank said "some continued monetary policy accommodation will likely be needed" to keep the economy operating close to its full potential.
The central bank pointed to unexpectedly solid economic numbers as key drivers behind its decision to hike the rate to 1.25 per cent, up from one per cent. The increase followed hikes in July and September.
In equity markets, U.S. stocks moved broadly higher, as the Dow Jones industrial average surged 322.79 points to 26,115.65, closing above 26,000 for the first time. The S&P 500 index was up 26.14 points to 2,802.56 and the Nasdaq composite index was up 74.59 points to 7,298.28.
With Wall Street reaching records so often, 1,000-point moves in the Dow have become increasingly commonplace. It's been just eight trading days since the Dow had its first close above 25,000.
Technology and health-care companies accounted for much of the U.S. gains.
North of the border, it was a fairly muted day on the S&P/TSX composite index, which rose a modest 27.82 points to 16,326.70, with the health-care, base metals and energy sectors among key advancers.
"The TSX is underperforming the U.S. markets," said Mattina. "It's really a story of the stronger U.S. marketplace and a bit of a trickle down effect for the TSX."
In commodities, the February crude contract was up 24 cents to US$63.97 per barrel and the February natural gas contract added 10 cents to US$3.23 per mmBTU.
The February gold contract was up US$2.10 cents to US$1,339.20 an ounce and the March copper contract was down three cents to US$3.19 a pound.
- With a file from The Associated Press