But just because the Bank of Canada does not have a target for the Canadian dollar does not mean that we ignore the exchange rate. Far from it. For any significant currency movement, we try to assess the implications for aggregate demand in Canada, and thus the implications for monetary policy.
And, as part of this analysis, we try to determine the factors driving a given movement. Let me expand on this. Interpreting currency movements The Canadian dollar can rise or fall for a number of reasons. But, in principle, we can divide exchange rate movements into two categories—Type One and Type Two.