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Commodities lift S&P/TSX composite to record close while loonie hits six-year high

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TORONTO — Strength in the commodities sectors lifted Canada's main stock index to its best close and propelled the loonie to its highest level in six years.

The key energy and materials sectors advanced in trading Monday, helping the Canadian dollar to climb to its highest level since May 2015.

The Canadian dollar traded for 82.77 cents US compared with 82.58 cents US on Friday. 

"It's really being fully driven by the broad rally in commodities that we have seen," said Angelo Kourkafas, an investment strategist at Edward Jones.

"There is a very close correlation between oil and the loonie and right now that's what's driving it higher."

Kourkafas expects the dollar will rise to about 84 cents US in the next few months.

"But to see really much higher Canadian dollar levels, that would require probably oil to trade near the $80s range, which is not our base-case scenario."

Energy gained 2.9 per cent as crude oil prices consolidated above US$66 a barrel over the prospects of rising demand in the United States, where COVID-19 vaccinations are prompting a rebound in travel ahead of the busy summer season.

"I think the markets are extrapolating the same thing globally but with a lag," he said in an interview. "What we are experiencing now on the U.S., it's going to more of a second half-year story everywhere else."

The June crude contract was up 90 cents at US$66.27 per barrel and the June natural gas contract was up 14.8 cents at US$3.11 per mmBTU.

Shares of Whitecap Resources Inc. increased 5.9 per cent, following by MEG Energy Corp. up 5.5 per cent and Vermilion Energy Inc. up 5.4 per cent.

Metals prices pushed the materials sector up three per cent with Endeavour Silver Corp. up 11.6 per cent, Equinox Gold Corp. up nine per cent and Pan American Silver Corp 8.8 per cent higher.

Gold reached its highest level since late January while copper continued its rally and silver climbed to its best value since February.

The June gold contract was up US$29.50 at US$1,867.60 an ounce and the July copper contract was up 5.7 cents at US$4.71 a pound. 

Kourkafas said it's no coincidence that precious metals have rallied just as Bitcoin is pulling back and is 30 per cent lower than its record high last month.

"Investors I think are looking for some exposure to asset classes that are considered to rise with inflationary expectations, and gold is one of them ... that is what's kind of fuelling the recent rally."

The S&P/TSX composite index gained 107.96 points to a record close of 19,474.65 that's about 70 points below its all-time high. 

In New York, the Dow Jones industrial average was down 54.34 points at 34,327.79. The S&P 500 index was down 10.56 points at 4,163.29, while the Nasdaq composite was down 50.93 points at 13,379.05. 

The market movements were mostly a continuation of last week's trends with elevated worries about higher inflation souring optimism about the economic recovery, said Kourkafas.

"Weakness continues to be concentrated in technology and generally the high-growth stocks while cyclical stocks, which is what really matters for the TSX are outperforming and that's what we see with energy and materials sectors leading the way and that really reflects the ongoing strength in commodities prices."

Financials were also higher as shares of National Bank increased 1.3 per cent and Power Corp. of Canada reached its highest ever level.

Last week's U.S. inflation and retail sales numbers that sparked last week's anxieties will likely be a blueprint for this week's Canadian data but shouldn't have the same impact on investor sentiment, Kourkafas added.

"Maybe because U.S. and Canadian markets reacted to last week's U.S. reading I think that probably sets the bar a little higher for the Canadian inflation in terms of what to expect."

This report by The Canadian Press was first published May 17, 2021. 

Companies in this story: (TSX:NA, TSX:POW, TSX:EDR, TSX:EQX, TSX:PAAS, TSX:WCP, TSX:MEG, TSX:VET, TSX:GSPTSE, TSX:CADUSD=X) 

Ross Marowits, The Canadian Press