TORONTO – Rising oil prices and optimism on NAFTA trade talks helped push the dollar and Canada’s main stock index higher Wednesday while U.S. markets ended slightly down after the Federal Reserve raised interest rates.
The Canadian dollar climbed 0.70 of a US cent to close at 77.17 cents US after encouraging news on both commodities and trade, said Kash Pashootan, CEO and chief investment officer at First Avenue Investment Counsel Inc.
On trade talks, the U.S. confirmed Wednesday that there has been a breakthrough on sticking points in the auto sector, while Prime Minister Justin Trudeau said he believes there will be an agreement in short order on a renewed North American free trade deal.
The progress is relieving some of the downward pressure on the loonie since U.S. President Donald Trump rattled trade relations by imposing steel and aluminum tariffs on all countries outside Canada and Mexico, said Pashootan.
“We’ve seen the Canadian dollar weaken off of the assumptions that NAFTA might completely unravel… but the worst case scenario is starting to look like it might not come to fruition, and then the outcome might be a little bit better than the worst case that was priced in. So we’re seeing the dollar also strengthen off of that, but again it’s still unclear where NAFTA goes, and that’s the wild card.”
Continued geopolitical uncertainty has been helping prop up oil prices in the meantime, with the May crude contract up US$1.63 to close at US$65.17 per barrel Wednesday, said Pashootan.
He said the rise in oil prices, as well as commodities in general, have helped boost the loonie but that stumbles on trade talks could set it back.
“It’s meaningful that we’re seeing oil prices up and the loonie rally, but I wouldn’t hold my breath here or get comfortable with the Canadian dollar at these levels, because all bets are off the table if NAFTA unravels.”
Oil price-fuelled gains in energy stocks helped push the S&P/TSX composite index up 58.92 points to close at 15,675.28, including Encana Corp up 7.52 per cent to $15.73.
The U.S. market had already priced in the expected rate hike from the Federal Reserve, leaving investors to try and decipher from comments Wednesday whether there will be the guided three rate hikes or four this year, said Pashootan.
He said the markets oscillated today as investors balanced concerns about rising interest rates that could tamper stock prices and optimism on economic growth that would help boost profits.
“You’re seeing evidence of that play out in the tug of war that’s taking place on the S&P 500 in terms of it going green to red and red to green.”
In the end the S&P 500 index was down 5.01 points to 2,711.93 and the Nasdaq composite index was down 19.01 points to 7,345.29. The Dow Jones industrial average closed down 44.96 points to 24,682.31.
The April natural gas contract ended down four cents to US$2.64 per mmBTU. The April gold contract closed up US$9.60 to US$1,321.50 an ounce and the May copper contract ended up two cents to US$3.06 a pound.