The Canadian case for a weak dollar

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From a report sent out this morning by Merrill Lynch North American economist David Rosenberg (who is Canadian):

We don’t seem to recall that the economy or market backdrop in Canada (and New Zealand or Australia for that matter) were being severely damaged when the Canadian dollar (the loonie) endured its multi-year downward adjustment through most of the 1990s. The chronic doomsayers over the US dollar should make an attempt at understanding that this is not about Ben Bernanke–it’s about the balance of payments backdrop and the reality is that currency depreciation has been and always will be one mode of adjustment in terms of redressing large-scale current account deficits.

While the loonie plummeted against the dollar between 1992 to 2002, Rosenberg says, inflation in Canada declined from 4.5% to 1.3%, the short term interest rate set by the Bank of Canada dropped from 7% to 3%, and ten-year bond yields dropped from 8% to 5%. Meanwhile, Canada’s huge current account deficits turned into surpluses. That doesn’t sound so bad, does it?