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80% of Canadian exports go to the US.

A slowing, likely negative growth US economy, is sufficient justification for dropping rates given anticipated lags of roughly one to two years for monetary policy shocks to affect the real economy.

I would be most pleasantly surprised if the US can survive US$100+/barrel oil and US$3.25+/gallon gasoline and not go into recession in the context of current home-grown financial crisis.

You wrote: Now that the current account has gone negative, the CAD is unlikely to appreciate much more in the near term. And if the CAD-USD rate stays stable while oil prices continue to rise, then exports will be somewhat cushioned from the US slowdown.

Yes, aggregate exports will be cushioned. But manufacturers and service exporters will get hammered.

The high degree of correlation between benchmark oil prices and the Canadian dollar valued in US dollar units is probably another good reason for the BoC to drop rates.

Monetary policy is a lousy way of trying to compensate for bad public resource management that Canadians universally love, but can you blame the BoC for trying?

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