"I think it's going to take a still cheaper Canadian dollar — somewhere in the 85 cents US range — to restore enough of our lost competitiveness to really get that capital spending in gear as a second driver of growth," Avery Shenfeld said while providing his economic outlook at the bank's annual institutional investor conference.
Shenfeld said he's optimistic about the export picture in light of robust gains in the past few months.
But the economist said a weaker currency in 2015 could add even more momentum, especially in non-energy sectors like machinery and lumber that account for 75 per cent of Canada's exports.
He said the exchange rate needs to dip on a sustained basis to have a lasting impact on rebuilding Canada's export capacity.
"The currency may have depreciated but it's going to take a number of years to win new mandates, get new facilities to choose Canada as a location," he added in an interview.
Shenfeld expects the loonie will eventually fall from its current perch of about 91 cents US to a level needed to encourage businesses to invest in facilities.
Some companies that left Canada for the Far East when the dollar breached parity with the U.S. greenback won't return, but he says others lost to the United States and Mexico may if conditions are right.
The economist commented after Bank of Canada governor Stephen Poloz said Tuesday that he was "cautiously optimistic'' about the export trend of the past five or six months but that it would take longer for the gains to be translated into business investment and job creation.
"Those things take time and we have experienced serial disappointment for several years in a row and so there's still a strong case to be waiting and seeing,'' he said after vowing to continue to keep a hands-off approach to the loonie.
He said a rise in export-related employment will be slow because of lingering uncertainty that's also prevalent globally.
Shenfeld said there will be a bit of an employment lag since investment decisions sometimes take longer to be made.
But he anticipates Canada's employment, which has grown much slower than expected given the recent positive economic signs, should improve as export demand continues to rise.
"I think now the tide may swing back. I suspect over the next 12 months the employment numbers will pick up because you can't keep getting more juice out of your existing workforce. At some point, in order to produce more, you've got to do more hiring."
Meanwhile, Shenfeld said he expects the Federal Reserve will begin to raise its overnight interest rate next March, earlier than many predict, to be followed later in the year by the Bank of Canada.
However, he thinks both central banks will likely take a pause after the rates increase to about 1.5 per cent, before Canada's rate eventually rises to about 2.5 per cent in several years.
"So a tightening cycle in Canada, but one that is slow and calm."
The Federal Reserve signalled later Wednesday that it plans to keep a key interest rate at a record low near zero "for a considerable time" because a broad range of U.S. economic measures remain sub par. Observers had been wondering if that wording would change in the face of recent improvements in the U.S. economy.
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