The Bank of Canada's increasingly dovish stance explains only a small part of the recent depreciation of the Canadian dollar. We think it has more to do with the pullback in commodity prices, especially crude oil, which is a negative for the economic outlook. Accordingly, the dollar's retreat is acting more like a shock absorber, rather than a catapult. We still expect Canada's economic performance next year to be held back by weaker housing and household spending. The weaker dollar won't prevent GDP growth slowing to 1.5% in 2014.
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