Governor Tiff Macklem and his deputies paused to consider the exchange rate before dropping the benchmark borrowing rate by half a percentage point on Dec. 11, the summary of those deliberations showed. Policymakers decided the loonie’s weakness was primarily a reflection of the U.S. dollar’s strength, but “acknowledged the divergence between U.S. and Canadian monetary policy was likely having some impact.” (The Logic) 

Talking point: The Canadian dollar was trading around 71 U.S. cents when the Bank of Canada last met. It touched 69 cents last week amid Chrystia Freeland’s resignation as finance minister and the U.S. Federal Reserve’s concession that it probably won’t be cutting borrowing costs as much as it anticipated, and was hovering around 70 cents on Monday. The Bank of Canada doesn’t follow the Fed in lockstep, but there are limits to divergence because a weaker currency puts upward pressure on inflation by making imports more expensive. The exchange rate could be an important variable at the next policy meeting at the end of January. Policymakers have a “range of views” on where rates should head in 2025.