The Bank of Canada (BOC), which has cut its rate twice this year by a total of 50 basis points in response to the drag on economic activity from lower oil prices, added that "while the overall export picture is still uncertain, the latest data confirm that exchange rate-sensitive exports are gaining momentum."
The adjustment of Canada's economy to lower prices for oil and other commodities is "expected to take considerable time," the BOC said, adding that overall activity is still underpinned by solid household spending and strength in those sectors that are exposed to the U.S. recovery.
The Canadian dollar, known as the loonie, has been weakening against the U.S. dollar for the last three years but the speed of its deprecation accelerated with last year's fall in oil prices and since June this year it has been dropping continuously.
Earlier today the loonie was trading at 1.32 to the U.S. dollar, down 12 percent since the start of this year and down 20 percent since the beginning of 2014.
Canada's Gross Domestic Product shrank by 0.1 percent the second quarter from the first quarter, for two consecutive quarters of economic contraction. Compared with the second quarter of 2014, GDP rose by 1.0 percent, down from 2.0 percent in the first quarter.
The BOC said inflation was evolving in line with its forecast from July with disinflationary pressures from economic slack offset by the transitory effects of the lower Canadian dollar.
"The stimulative effects of previous monetary policy actions are working their way through the Canadian economy," the BOC said.
In July Canada's Inflation rate rose to 1.3 percent from 1.0 percent in June and off a 2015-low of 0.8 percent in April.
In its latest monetary policy report, the BOC forecast inflation of 1.4 percent by the fourth quarter of this year and by 1.9 percent by the fourth quarter of 2016, slightly below its 2.0 percent target.
The BOC in July cut its 2015 growth forecast to just over 1.0 percent from a previous forecast of 1.9 percent.