BoC: Will take longer for Canada’s economy to rebalance – RBC CM

Elsa Lignos, Senior Currency Strategist at RBC Capital Markets, notes that the BoC’s Poloz spoke last night on trade and monetary policy.

Key Quotes

“He spoke of the falling sensitivity of trade to exchange rates amongst other things (“Increased integration may make it more challenging for central banks to control inflation, in the sense that doing so will require more variability in interest rates, exchange rates and the output gap”.) He also suggested NAFTA and the Canada-US free trade agreement “have fallen short of predictions made by proponents during pre-agreement debate”. He argues Canada’s weak exports may in part be due to Canadian companies shifting production abroad (a trend also seen in Japan making export volumes less likely to respond to a cheaper currency). The bottom line is it will take longer for Canada’s economy to rebalance (3-5 years by his estimate) and CAD may need to weaken further. He did not comment on the current path of monetary policy.”