Search ForexCrunch

Krishen Rangasamy, analyst at National Bank Financial, points out that after a decade of red ink on the current account, some have advocated for a weaker Canadian dollar to restore Canada’s external balance.

Key Quotes

“The argument is that a cheaper loonie would rekindle exports and hence give a boost to the current account. But if the last five years are any guide, such depreciation may not have the desired impacts.”

“Besides reducing incentives among exporters to become more competitive, a weaker Canadian dollar would tend to increase imported inflation and prompt our inflation-targeting central bank to keep monetary policy tighter than would otherwise be the case. More importantly perhaps is the negative impact a weak currency can have on investment and hence potential GDP.”

“Latest data from Statistics Canada shows a sharp increase in the price of machinery and equipment in 2019Q1 (+6.2% year-on-year) driven by the imported component (+7.3% year-on-year), the latter surging amid the loonie’s depreciation over the past year. And that’s restraining business investment.”