-David Rosenberg, chief economist of Gluskin Sheff + Associates
The loonie has been steadily appreciating since March, adding pressure on the land of the maple leaf. The nation's policymakers are trying to talk down the currency without introducing any bold measures.
During its April's policy meeting, the Bank of Canada left its key refinancing rate unchanged at 1%, where it has been since September 2010, meeting analysts' expectations. The bank affirmed its neutral bias on the direction of its next interest-rate move, as policymakers look for more statistics, while companies are still reluctant to increase investment. The central bank believes the inflation rate will stay close to the target range, due to the fact energy bills will begin to decline. With the inflation of 2% on the track, the economy will have to reach its full capacity, which is projected to happen in 2016. Once the economy reaches the full capacity, the Bank of Canada believes the growth will stand at 2%, as the economy will grow at its speed limit. The short-term growth outlook stands at 1.5% for the first quarter of this year.
A weaker loonie and the ongoing economic recovery in the world's largest economy are likely to help exporters, boosting the demand for Canadian goods. Nevertheless, the USD/CAD pair still has a potential to appreciate, easing pressure on the Bank of Canada further.
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