Source: The Canadian Press

The governor of the Bank of Canada says the central bank and federal government are keeping their options open when it comes to dealing with the impact of currency tensions on the Canadian dollar.

“What is important to keep in mind is that we have to observe a persistent strength in the Canadian dollar which might impact Canada’s economic growth in a serious fashion so we have to be assiduous,” Mark Carney told a parliamentary committee on Tuesday.

The Canadian currency had registered a sharp gain Monday, rising almost two thirds of a U.S. cent as the greenback sold off in the wake of a weekend meeting of G20 countries where finance ministers made a commitment to avoid a currency war.

Carney said progress at that meeting was important, but more work needed to be done.

In the central bank’s latest report, it forecast that the economic recovery in Canada would be more gradual than expected, reflecting a more gradual global recovery overall.

Carney told MPs that part of the impact in Canada could come in the form of a much more abrupt correction in the housing market than predicted.

He also told MPs that increased government spending isn’t consistent with both federal and provincial government pledges to cut deficits.

As the bank grapples with keeping the economy in line, it is also reviewing whether the 2% target for inflation is still appropriate.

Carney told MPs they are still working on that question in the lead-up to a renegotiation of the target rate next year.