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“New governors often get themselves into trouble talking about the Canadian dollar,” Macklem told reporters on Sept. 10. “It’s appreciated a little bit less than some others,” he continued, responding to a question about what he thought about currency’s appreciation. “That is certainly something that we will take into account as we assess the amount of monetary stimulus required in the economy going forward.”
Exchange rates haven’t been an issue so far during the COVID-19 recession, because every major central bank has dropped interest rates to zero, eliminating easy opportunities for arbitrage. But, as time goes on and some economies begin to show more promise than others, exchange rates will probably re-emerge as a point of contention.
Gita Gopinath, chief economist at the International Monetary Fund, warned earlier this month that current conditions make “currency wars” a greater risk going forward. “When interest rates are near zero, monetary policy works to an important extent by weakening currencies to favour domestic producers,” she wrote in the Financial Times.
The Canadian dollar appears to have caught a tailwind lately, touching 77 US cents earlier this month, its highest level in a couple of years. Most Bay Street forecasters think that’s the ceiling for now, but National Bank’s chief economist, Stéfane Marion, broke from the pack this week with a prediction that a relatively generous fiscal stimulus and an improving economy would push the dollar to 80 US cents by this time in 2021.