Crude oil explains why three things that look unrelated happened in the same week. West Texas Intermediate settled at US$104.12 on Friday, up about 15% in October. The Bank of Canada raised its overnight rate for the first time since July 2023, the Federal Reserve held at 3.75% to 4.00% while markets priced a December hike, and the S&P/TSX Composite had its worst session since June 5.
The connection is not that oil moved the TSX directly. It is that oil now sets the rate path, and the rate path is what pressures gold, the miners and richly valued technology shares. Reuters attributed the 629-point Friday drop to a slide in gold and worries about AI spending, with technology and metal mining shares leading.
The Bank of Canada Raised Rates Against Core Inflation Near 2%
The October 28 decision lifted the overnight rate to 2.50%, with the Bank Rate at 2.75% and the deposit rate at 2.45%. The case for the move was energy, not breadth. Headline CPI reached 3.1% in September, but excluding gasoline it was 2.2%, and the Bank's preferred core measures sit near 2%, with CPI-trim at 1.8% and CPI-median at 1.9%. It projects headline inflation near 3.5% by year end and averaging 3% in 2027, returning to 2% in mid-2028.
The Bank also expects growth to slow: GDP rose 3.3% annualized in the second quarter, with about 2% projected for the third and below 1% for the fourth, and unemployment is near 6.5%. A central bank is tightening into a slowdown to stop a supply shock from spreading. Its statement said there could be a need to increase the policy rate further, but that Governing Council agreed to proceed carefully.
Markets treat October as a first step. Pricing cited by nesto after the decision implied a 45% chance of another 25 basis point increase on December 9 and a 99% chance of one by January 27. Canada's two-year yield reached a two-year high, according to Reuters.
Crude Is Raising Both Rate Paths While Gold Absorbs the Cost
The Federal Reserve held its target range at 3.75% to 4.00% on October 28 in a 10 to 2 vote, six weeks after its September 16 increase, with a December hike priced in. The supply shock behind both decisions did not ease by Friday. The UK Maritime Trade Operations Centre counted 43 security incidents in the Gulf in October, 30 of them direct strikes on tankers, and markets feared a renewed US and Israeli escalation with a third carrier group due by late November.
Higher energy prices lift Canadian producers, but the rates they provoke weigh on everything else in the index. On Friday the TSX fell 629 points, or 1.74%, to 35,620.03, its lowest close since October 14, and Cameco dropped 9.5%. The index lost 168 points, or 0.47%, on the week and still finished October up 1.09% after a 2.85% decline in September.
The Policy Gap Is Back Where It Started
The Bank of Canada and the Federal Reserve have each ended up 50 basis points below their January 2025 settings, which leaves the gap between the two policy rates at 150 basis points, exactly where it started.
The gap was as wide as 175 basis points in 2025 and again from September 16 to October 27, 2026. The Federal Reserve series tracks the upper bound of the target range.
That symmetry fits a currency that barely registered the week. The Canadian dollar closed Friday at 71.57 US cents, close to the 71 cents the Bank cited in its decision. The same oil headline can now move two rate paths on the same afternoon, which is why Canadian portfolios hold the energy gain and the rate pressure together. Both central banks have unwound exactly as much easing as the other, so the spread that drives the currency has not shifted even as each bank's direction has.
The question for the weeks ahead is whether the energy gains that crude above US$100 brings can keep offsetting the pressure its rate path puts on everything else.