04:15 PM EDT, 05/02/2024 (MT Newswires) -- The Toronto Stock Exchange made it two straight wins to start the month of May with the S&)/TSX Composite Index rising 94.67 points on Thursday -- adding to a modest 15 points gained Wednesday and closing at 21,823.22 -- as at least some market watchers continue to talk down concerns around policy rate divergency between Canada and the United States.

The resources heavy TSX was also likely helped by largely steady commodity prices. Just about more sectors were higher, led by Industrials and Utilities, both up by more than 1%. Health care was the biggest loser, down near 1%.

On policy rate divergence, National Bank published a note entitled 'Is BoC policy rate divergence possible?' in which it noted that many will argue that the Bank of Canada is "somewhat tethered" to the Fed. That lowering rates ahead of the U.S. central bank would mean a weaker currency which would be followed by imported inflation which would render any easing counterproductive. "We're not convinced," National said.

National Bank doesn't deny that a weaker Canadian dollar boosts import prices, but it said the pass-through to consumer prices is smaller than widely appreciated. It noted BoC research, and the model that underpins their forecasts and policy analysis, indicates a 10% CAD shock might add just 25-30 bps to core CPI. Recent episodes of C$ weakness have not coincided with outsized inflation either, outright or vis-a-vis the United States, the bank added.

Bond yields today, the National Bank team noted, reflect expectations that the BoC-Fed rate gap will grow. "All else equal then," they said, "there'd need to be more aggressive BoC easing than is priced to produce a material FX impact." Is there, they asked, an amount of depreciation the BoC won't tolerate? "Probably, but to us it's much weaker than the low 1.40s that we project. It's entirely reasonable the BoC's policy rate could fall 100 bps below the Fed's without policymakers batting an eye."

Of commodities today, gold prices were mostly steady mid-afternoon as the dollar and yields fell after the Federal Reserve's day-prior decision to stand pat on interest rates, while US productivity growth rose less than expected in the first quarter. Gold for June delivery was last seen up US$2.00 to US$2,313.00. The price of the metal is sticking above the US$2,300 mark following a correction that followed a rise last month to a record $2,413.80 on April 19.

But West Texas Intermediate crude oil edged down, following on from a day-prior 3.6% drop to the lowest since mid-March on an unexpected rise in US inventories that showed weaker than expected demand. West Texas Intermediate crude oil for June delivery closed down $0.05 to settle at US$78.95 per barrel. July Brent crude closed up US$0.23 at US$83.67.