The stronger currency, in turn, tends to restrain exports and to encourage imports. By restraining the demand for Canadian-produced goods and services, the floating exchange rate helps to keep total supply and demand in balance.
Similarly, when there is falling global demand for Canadian-produced goods and services, the floating exchange rate will encourage demand for these goods and services, again helping to keep total supply and demand in balance. Exchange rate movements and monetary policy This brings me to my next subject, which is how we at the Bank of Canada view movements in the exchange rate.