04:55 PM EDT, 07/30/2025 (MT Newswires) -- (Includes commentary on the Bank of Canada from Macquarie Group)

The Toronto Stock Exchange dropped nearly 160 points from record high levels Wednesday, likely on some profit taking, but also as one economist suggested Bank of Canada officials "haven't a clue what to do next" after they left the benchmark interest rate unchanged, as expected, today, while also leaving the door ajar for a possible rate cut to come this year.

The TSX closed down 169.92 points or 0.6% at 27,369.96. This after it posted a record close of 27,539.88 on Tuesday. Most sectors were lower, led by Base Metals (-3.2%) and Health Care (-2.6%). Utilities made a modest gain.

It wasn't just uncertainty around the outlook for rates that weighed on the TSX. Trade uncertainties were also a negative factor.

On Wednesday afternoon, ahead of an August 1 deadline for a deal, U.S. President Donald Trump signed an Executive Order that adds a 50% tariff on certain copper imports from Friday. But, according to Canada's CBC News, the levy does not apply to copper concentrate, with Canadians accounting for 99% of all copper concentrate imported by its bigger North America neighbour.

This comes as tariffs on a range of Canadian product are slated to rise to 35% from 25% as of Friday, But the tariffs will not apply to goods that are compliant with the Canada-U.S. trade agreement, which is up for renewal next year. Sectors including aluminum and steel, and autos, have been threatened with tariffs.

CBC cited RBC as saying near 90% of the value of Canadian exports to the U.S. qualify for an exemption from tariffs.

On rates, the BoC held the overnight rate steady for a third consecutive meeting, while leaving the door open to future cuts. The overnight rate has remained at 2.75% since March, after seven consecutive rate cuts lowered it from last year's peak of 5%.

For his part, Derek Holt, Vice-President & Head of Capital Markets Economics at Scotiabank, said a "lack of any useful forward guidance and continued avoidance of a base case forecast in favour of three scenarios now versus two back in the prior MPR [Monetary Policy Report] in April basically said they haven't a clue what to do next". He added: "I don't find we learned anything new whatsoever about the policy bias from this set of communications."

Despite recent decisions to hold, RBC's Claire Fan said past rate cuts from the BoC are likely still taking time to support the economy. But with mortgage rates mostly stabilizing near or above origination back in 2020-2021 origination levels, the effect on households is more like easing off the brakes than pressing on the gas, she added.

"Today," Fan said, "the car is in neutral and the outlook is still hazy. Tariffs in place today have been less severe than feared but Canada as one of the largest trade partners to the U.S., remains particularly vulnerable to protectionist U.S. trade policies. In two days, the latest U.S. self-imposed trade negotiation deadline could result in escalated tariffs beyond today's targeted but relatively limited levels."

According to Fan, a significantly more negative outlook, one that resembles spring, remains a downside risk. Fan said while the BoC projects inflation will rise in that kind of a scenario as tariff impacts outweigh economic weakness, further rate cuts would be appropriate if it became clear that the economy was sliding into recession. "Barring such deterioration and following our base case, we expect the BoC will maintain current rates going forward," she added.

David Doyle, head of economics at Macquarie Group, noted ongoing uncertainty and recent elevated underlying inflation readings featured prominently in the BoC's decision. He also noted forward guidance continued to suggest the potential for a cut ahead is still couched in data dependence. "Looking ahead, the outlook is uncertain. Market pricing for cuts moderated slightly on the announcement and have been broadly lessening since late March," Doyle said.

Doyle noted Governor Macklem struck a similar tone in his press conference as he did in June, emphasizing that elevated uncertainty means the BoC is putting more weight on risks and taking a shorter time horizon than usual. He echoed the key forward guidance line from the statement, indicating that "if a weakening economy puts further downward pressure on inflation and the upward pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate." In describing the economy, he indicated that while excess supply has increased since January, there has been resilience thus far.

Macquarie's forecast is that there will be greater economic weakness in the second half of 2025 than implied by the BoC's current tariff scenario and a moderation in underlying inflation. This leads it to anticipate about 50 bps in further cuts with these most likely to occur in October and December. "Should growth hold in better than we anticipate and underlying inflation remain firm, however, the BoC is likely to continue to stay the course," Doyle added.

Of commodities, gold moved lower midafternoon Wednesday ahead of the end to the two-day meeting of the Federal Reserve's policy committee that, as expected, left U.S. interest rates unchanged, while reports showed the U.S. economy rose at a faster than expected pace in the second quarter. Gold for December delivery was last seen down $27.70 to US$3,353.50 per ounce.

But West Texas Intermediate crude oil closed higher, climbing for a third session even as a report showed an unexpected rise in U.S. inventories. WTI crude oil for September delivery closed up $0.79 to settle at US$70.00 per barrel, while September Brent oil was last seen up $0.68 to US$73.19.