It is essentially determined by the markets. However, the Canadian economy has been gathering momentum lately, and prospects are good for continued robust expansion through 1997 and into 1998, in response to the substantial past monetary easing. With the margin of excess capacity in the economy still fairly wide, there is ample room for strong growth in coming quarters without a resurgence of inflation.
However, as the slack is absorbed, the Bank will need to pursue less stimulative monetary conditions, consistent with a durable, low-inflation economic expansion. In other words, for cyclical as well as for more fundamental reasons, the prospects are good for a stronger Canadian currency.