TORONTO — The Canadian dollar shot up on Friday as North American markets continued to react to the U.S. Federal Reserve's new inflation-tolerant monetary policy, revealed in a Thursday speech by chair Jerome Powell.
The Canadian dollar traded for 76.35 cents US, up from 76.17 cents US on Thursday, and an analyst predicted it could continue to strengthen.
"In Powell's message, what you can imply from that is a continued devaluation of the U.S. dollar. As this becomes perhaps informal policy, as a side effect of that policy, we expect the Canadian dollar to continue to rally," said Philip Petursson, chief investment strategist at Manulife Investment Management.
"We have a near-term target of 77 cents US (over the next few days) ... but we're moving higher, to 79 cents, over the course of the next six months."
Canada's main stock index closed slightly lower on Friday although it gained about 1.1 per cent on what has been an up-and-down week.
The S&P/TSX composite index was down 25.70 points at 16,705.79 on Friday, pulled lower by consumer staples, financial and utility sectors but yanked higher by gold, cannabis and energy stocks.
Losers on the day included Alimentation Couche-Tard Inc., down 2.58 per cent to $43.74; George Weston Ltd., down the same amount at $96.15; and Brookfield Renewable Partners LP, off by 2.57 per cent at $60.54.
Most of the financial stocks were down but an exception was CWB Financial Group, owner of Canadian Western Bank, whose shares jumped 7.59 per cent to $27.37 after beating analyst expectations with its quarterly results.
The December gold contract was up US$42.30 at US$1,974.90 an ounce, a development linked to prospects for higher inflation thanks to the Fed's more flexible position, said Petursson.
Mining companies led the materials sector to a 2.27 per cent gain, with Silvercorp Metals Inc. up 7.63 per cent to $10.86, while intermediate oil and gas producers led the energy sector higher.
In New York, the Dow Jones industrial average was up 205.40 points at 28,697.67.
The S&P 500 index was up 24.16 points at 3,508.71, while the Nasdaq composite was up 78.76 points at 11,704.10.
The U.S. markets have developed a split personality, Petursson remarked, but only one side is getting attention.
"The two sides are, one, the belief the Fed is going to continue to be accommodative for years and therefore that can only be good for stocks," he said.
"But there's another side to that and that's if the Fed lets inflation run hot, that tends to put a ceiling on P/E (price-to-earnings) multiples and, in fact historically, as inflation goes up, it compresses your P/E multiple — and that seems to be completely ignored right now."
He warned that September and October are historically the two weakest months for U.S. markets.
"A correction is well within normal market activity, especially this time of year, especially with a (presidential) election coming up," he said. "That's something I think investors shouldn't be surprised with and, if it did materialize, should be positioned to take advantage of."
The October natural gas contract was down five cents at about US$2.66 per mmBTU on Friday and the December copper contract was up nearly three cents at US$3.02 a pound.
By Dan Healing in Calgary.
This report by The Canadian Press was first published Aug. 28, 2020.
Companies in this story: (TSX:SVM, TSX:MAG, TSX:HBM, TSX:BEP-UN, TSX:WN, TSX:ATD-B)
The Canadian Press