Meanwhile, the US economy has been powering ahead with the effects of the fiscal stimulus and, in response, the Federal Reserve has taken several steps over the last year to move interest rates toward their neutral level. This combination of factors has been putting downward pressure on the Canadian dollar. The lower Canadian dollar, in turn, will help support the economy through this period.
It’s been almost half a century since we set a target for the exchange rate. By and large, the exchange rate movements delivered by the market have served Canada well. Trying to hold the dollar constant would have given us larger fluctuations in unemployment, output and inflation.