Considering the Implications of Weaker Canadian Currency
A weaker domestic currency is good for exports. At least that is the conventional wisdom that stems from the notion that as the currency of a given country weakens that country’s goods become more affordable to foreigners, all else equal.
Five years into an economic expansion that has outpaced most other developed economies, growth fundamentals in Canada are showing signs of moderation. The GDP numbers show that economic growth picked up in the second half of last year, but inventory building played a large supporting role and without that boost, growth may be weaker in the early part of 2014. At the same time, CPI inflation has been on a weakening trend and is presently well below the target rate of 2 percent. In response, the Bank of Canada has transitioned to a more dovish policy stance and this, along with other factors, has resulted in a weakening in the value of the Canadian dollar.
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