The Loonie’s Flirtation with Parity: Prospects and Policy Implications

Philippe Bergevin and Colin Busby
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Philippe Bergevin: C.D. Howe Institute
Colin Busby: C.D. Howe Institute

No 101, e-briefs from C.D. Howe Institute

Abstract: With the Canadian dollar near parity with its US counterpart, monetary policymakers may come under pressure to curb future interest rate increases to limit the loonie’s appreciation. When the value of the loonie is in line with economic fundamentals, such actions would necessarily compromise the domestic inflation target. By examining the factors underpinning the Canada/US exchange rate, we conclude that the present trading range for the loonie is supported by fundamentals. The Bank of Canada should therefore continue its policy of benign neglect with regard to the exchange rate.

Keywords: Monitary Policy; Bank of Canada; exchange rate (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2010-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Published on the C.D. Howe Institute website, June 2010

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