At a press conference Thursday, Governor Tiff Macklem said the recent appreciation reflects in part higher commodity prices, which are good for the nation’s economy. Still, a continuation of the gains could begin to pose a risk to the central bank’s most recent forecasts released last month, which assumed an exchange rate of $0.8 per Canadian dollar.
The Canadian dollar is up 4.9% so far this year, the best performing major currency. It weakened after Macklem’s comments, falling to C$1.2179 per U.S. dollar, or $0.8211 per Canadian dollar at 1:12 p.m. in Toronto trading.
“If it moves a lot further that could have a material impact on our outlook and it’s something we’d have to take into account in our setting of monetary policy,” Macklem said Wednesday. “If the dollar were to continue to move — particularly if its not reflecting good developments for Canada — that could become more of a headwind on our export projection.”
The Canadian dollar has been tracking resource prices higher this year. The Bank of Canada commodity price index — a gauge that tracks movements of commodities produced in the country — has hit the highest since 2014 after gaining 30% so far this year. Excluding energy, the index is at an all-time high.
But the currency also appears to have gotten a lift from Macklem’s messaging, after the Bank of Canada last month accelerated the timetable for a possible interest-rate increase and pared back its bond purchases.
“Macklem only said that if the currency were to appreciate absent fundamental reasons, then they’d be more concerned about competitiveness implications but that so far that’s not the case,” Derek Holt, an economist at Bank of Nova Scotia, said by email.