These lower rates were maintained through most of the period from 1996 to the present. In today’s globalized financial markets, such persistent interest rate differences in the circumstances I have described are possible only with a floating exchange rate.
In both these examples, the exchange rate acted as a shock absorber between the US and Canadian economies, helping to facilitate the needed adjustment in response to differing shocks and differing policy requirements. Even though our two economies are closely linked, they can move in different directions. And when that happens, the shock-absorber role of a floating exchange rate is invaluable.