It is important that we understand the causes of exchange rate movements, because the implications for the economy, and the appropriate monetary policy response, depend on the cause of the change. Generally speaking, movements related to changes in demand for our goods and services would require little, if any, monetary policy response.
This is because their impact on Canadian aggregate demand would serve to offset the initial direct changes in global demand for our goods and services. And this would help to keep overall supply and demand in balance. So what can we say about the appreciation of the Canadian dollar?