Bank of Canada hints at stronger Canadian dollar

Bank of Canada hints at stronger Canadian dollar

Earlier this week, Bank of Canada governor Mark Carney gave a remarkable speech entitled “Canada in a Multi-Polar World”.

In a relatively short address, Mr. Carney covered a myriad of topics, centered on the theme of Canada’s place in a changing world. The global economy is in the midst of a powerful transformation, with the pace of change accelerated by the recent financial crisis.

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One of the key challenges for Canada lies in the outlook for the value of the Canadian dollar. I believe the new paradigm outlined by Mark Carney implies that the Canadian dollar will not only remain above par, but will strengthen further. Mr. Carney outlines four factors that will support Canadian dollar strength.

Firstly, we are in the midst of a commodity price super cycle — there will be fluctuations in prices but the cycle could proceed for some time reflecting fundamental Asian demand. Capital flows are also critical. Foreign central banks have already begun the process of diversifying their massive reserves away from the U.S. dollar and in to free floating currencies like the Canadian dollar.

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