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By Chris Hannay (@channay)
Bank of Canada Governor Stephen Poloz spoke in Ottawa this morning about divergence in monetary policy between the U.S. and Canada. He also touched on the advantages and disadvantages for the Canadian economy of a low dollar, which is currently hovering around $0.70 (U.S.). Here's an excerpt from his speech (you can read it all here).
"The depreciation of our currency is a natural part of the process. It does several things at once.
"First, it offsets a part of the drop in commodity prices, which are usually priced in U.S. dollars. In other words, Canadian-dollar revenues for commodity exporters fall by less than U.S. dollar revenues.
"Second, the depreciating dollar boosts Canadian-dollar revenues for exporters of other goods, which are also often priced in U.S. dollars. This then allows those companies to compete more effectively for future export sales. Those increased sales eventually mean more growth and rising investment in the non-resource sectors of the economy, and more employment. In other words, the exchange rate decline helps to facilitate a shift in the economy's growth engine from the commodity sector to the non-commodity sectors.
"We have already seen stronger growth in exports of non-commodity goods such as machinery and equipment, furniture, pharmaceuticals, aerospace and electronics, to name a few. This is helping to offset the weakness in the resource sector tied to lower commodity prices, but this natural process will take time to translate into more investment spending and new job creation.
"Third – and this will sound like a less desirable part of the process – a lower Canadian dollar raises the price of imported goods for everyone. This spreads the impact of the loss of income across the entire economy, rather than leaving it just in the commodity-producing sector.
"Even so, there are large regional and sectoral differences in Canada's economy – with the resource-producing regions taking a much harder hit. The exchange rate can't absorb the shock in its entirety for any one sector or region, so those underlying adjustments will continue for some time."
WHAT YOU SHOULD KNOW THIS MORNING
> The federal cabinet is currently reviewing its military options in Iraq and Syria, with Canada poised to withdraw its fighter jets in the coming months. Those options include sending more special forces soldiers to train Kurdish peshmerga fighters, increased surveillance or clandestine operations with JTF2 commandos.
> The light armoured vehicles that are being produced in Canada for the Saudi Arabian National Guard will be equipped with lethal weapons, such as a cannon designed to shoot down anti-tank missiles.
> Statistics Canada is getting ready to roll out the (once-again mandatory) long-form census.
> Thought you had heard the last of Keystone XL? TransCanada is seeking more than $15-billion in damages from the U.S. government for the denial of a permit to build the pipeline.
> Are Syrian refugees really getting more government assistance than Canadians on welfare?
> And the new parliamentary poet laureate George Elliott Clarke, known for writing about anything from social justice to sex, says one of the projects he plans to take on in office is rewriting the Constitution in verse.
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WHAT EVERYONE'S TALKING ABOUT
"Let's be clear: These are weapons. The Canadian light armoured vehicles, or LAVs, that will be sold to Saudi Arabia are not jeeps. They are big, 8x8 armoured vehicles with gun turrets on top. And they are being sold to an internal security force, not Saudi Arabia's regular army. That force, the Saudi Arabian National Guard, is tasked with protecting the royal family. It deploys its armoured vehicles at protests. There can be no assurance they will never be used against Saudi civilians."
– Campbell Clark on the arms deal.
Sheema Khan (Globe and Mail): "Some will be critical of the airing of "dirty laundry" during difficult times for Muslims. Yet meaningful discussions about the treatment of women have been avoided for far too long. To what end? What we don't need is another lecture about the dress and behaviour of the "ideal" Muslim woman. Instead, we need to hear more about men taking responsibility for their actions, and treating women as equal human beings."
John Ibbitson (Globe and Mail): "Progressive voters who hoped Justin Trudeau would abruptly shift the federal government to the left once he became Prime Minister must be in despair as the new regime announces one conservative-friendly policy after another – further proof that when it comes to the really big decisions, the imperative of protecting jobs and the economy trumps human rights, the environment and other concerns in these difficult days." (for subscribers)
Konrad Yakabuski (Globe and Mail): "The world is not always a sunny place and it would be the height of naiveté for any Western government, no matter how high-minded, to argue that by weakening Saudi Arabia, it would somehow be promoting peace and human rights in the region that knows little of either."
Jeffrey Simpson (Globe and Mail): "The West, although it has interests to defend, oil and domestic security among them, is to some extent a bystander to a feud between Sunnis and Shiites that dates back to Islam's earliest days and remains profound today." (for subscribers)
Evan Solomon (Maclean's): "But whatever fancy terms you want to wrap it in, Canada is more than happy to sell arms to our pals, no matter how many heads they lop off."
Claire McIlveen (Halifax Chronicle Herald): "Lower pay means less cash for retirement savings. So while elderly relatives may be enjoying stable pension incomes, it's going to be a different story down the road."
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