04:31 PM EDT, 09/17/2024 (MT Newswires) -- The Toronto Stock Exchange closed with its first drop in five session on Tuesday, falling off a record high as investors took profits, even as Canada's inflation rate fell to the lowest since February, 2021, firming expectations the Bank of Canada will continue to lower interest rates, while the Federal Reserve will begin in own rate-cutting cycle on Wednesday.

The S&P/TSX Composite Index closed down 24.37 points to 23,677. Energy, up 1.5%, and Health Care, up 0.7%, were the biggest gainers. Industrials, down 0.8%, and Utilities and Telecoms, each down, 0.3%, were the biggest decliners.

West Texas Intermediate (WTI) crude oil closed with a gain on Tuesday, as supply remains tight even as demand from China continues to weaken. WTI crude oil for October delivery closed up US$1.10 to settle at US$71.19 per barrel, while November Brent crude, the global benchmark, closed up US$0.95 to US$73.70.

Gold traded lower late afternoon, falling off a record high for a second day with the dollar and yields rising as U.S. retail sales were stronger than expected last month, the last major economic release ahead of Wednesday's interest-rate decision by the the Federal Reserve's policy committee. Gold for December delivery was last seen down US$13.20 to US$2,595.70 per ounce.

Statistics Canada on Tuesday reported the August Consumer Price Index fell to 2%, the lowest more than in three years and the mid-point of the Bank of Canada's (BoC) 1% to 3% target range, firming expectations the central bank will continue cutting interest rates to stimulate a slowing economy.

RBC Economics said while inflation looks firmly back within the BoC's target, interest rates are still too high, restricting economic growth and likely to continue to push prices lower.

"Per-capita GDP (was) already down in 7 of the last 8 quarters and the unemployment rate (is) up more than a percent from a year ago. Against that backdrop, the path to further BoC interest rate cuts is clear. We continue to expect a gradual rate cutting path (25 basis points per meeting) down to a 3% overnight rate with risks tilted to potentially larger cuts if the economy softens significantly further," RBC noted.

However some economists are urging the central bank to be cautious as it cut rates. In Scotiabank's view, upsizing interest-rate cuts on the back of the data would be a policy misstep because Canadian core inflation picked up again in August over July.

Canada' slowing economy was highlighted by another economic release on Tuesday, which showed housing starts plunged 22% in August from July, on a weaker performance in Ontario and British Columbia.

"That starts pulled back in August after July's hefty gain was not surprising. However, the extent of the decline was a surprise, and this is the first time that urban starts have dropped under 200k annualized units this year. That said, the prospect of some bounce back in September should leave starts above their Q2 average in Q3, pointing to some positive contribution to residential investment and overall economic growth," TD Economics noted

The Federal Reserve's policy committee will begin cutting U.S. interest rates at the end of its two-day meeting on Wednesday afternoon. The CME Fedwatch Tool sees a 63% probability for a 50 basis point cut to rates, with further cuts coming in November and December.