The Department of Finance, the Bank of Canada and the Canadian Dollar

It’s not often that you can detect even a nuance of difference between Finance and the Bank on key economic issues, but do I detect a hint of greater alarm on the part of the former over the recent super-rapid appreciation of the Canadian Dollar?

In yesterday’s Economic Statement (Chapter 1, p.19) “If the Canadian dollar were to remain close to recent trading levels, this would pose a downside risk to the trade sector and to overall economic growth. Further, recent increases of the dollar may reflect generalized US dollar weakness and speculative sentiment toward the Canadian dollar rather than domestic fundamentals.”

In the recent Monetary Policy Report from the Bank “If the Canadian dollar exchange rate were to persist above the assumed level of 98 cents US over the projection horizon for reasons not associated with with stronger than projected demand for Canadian products, Canadian output and inflation would be lower.” (p.30)  The report only hints at speculative forces behind Canadian dollar depreciation.

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