Economy & Markets

The loonie also saw a drop after the Bank of Canada’s announcement to keep interest rates at 1%

By Canadian Press |
Source: The Canadian Press

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 15,908.70. Gains by several of Canada's biggest lenders — including Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada — weren't enough to compensate for a nose-diving energy sector, which was down more than 2% at the closing of markets.

The January crude contract tumbled US$1.66 to US$55.96 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 US$35 to US$40," 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 24,140.91. The S&P 500 index was down 0.30 of a point to 2,629.27 and the Nasdaq composite index was up 14.17 points to 6,776.38.

In currency markets, the Canadian dollar closed at an average trading price of US78.39¢, 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.

The central bank has now left the rate locked at 1% for two straight policy announcements after the strengthening economy prompted it to raise it twice in the summer.

"I'm very happy about that. The last thing I think we wanted to do as a nation for the economy is to get in front of the (U.S. Federal Reserve), for us to start raising rates further before the Fed does," said Small. "Because then you'd see our loonie at US85¢  .... and that wouldn't do anyone any good."

"The Band of Canada did a wise thing not to raise rates. Let the U.S. raise rates in December. Let our dollar fall down to US75¢. It's a good thing for our economy. A weaker dollar makes a lot of sense," he said.

Elsewhere in commodities, the January natural gas contract was up US1¢ at US$2.92 per mmBTU, the February gold contract added US$1.20 to US$1,266.10 an ounce and the March copper contract was up US2¢ to US$2.96 a pound.