Sunday, September 23, 2007

The Canadian Dollar: A Few Quick Facts

At 10:58am (EST) the Canadian dollar traded at parity with the US dollar. Shortly there after: The Globe and Mail reported that "A cheer went up in currency trading rooms across the country".

Yes, parity. This is the first time since November 25, 1976. Back then, as James Powell wrote in A History of the Canadian Dollar, “The strength of the Canadian dollar through this period can largely be attributed to strong global demand, which boosted the prices of raw materials,”. Very similar to what is going on today.

What has drive the value of the Canadian dollar? Historically, the prices of both energy and non-energy commodity prices, CDN/US interest rate differentials, and CND/US inflation differentials have explained the vast majority of CDN/US exchange rate movements. And yes, it is nearly impossible to predict anyone of these factors and there is no telling what the future will bring.

With that being said: my hat goes off to The National Bank of Canada: in April 2006 they predicted parity by the fall of 2007. Nicely done.

For a graphical history of the dollar, there is an interactive chart here (we can't even talk about our currency without talking about hockey!).

Factoid: How high has the Loonie flew? July 11, 1864, the greenback traded at less than $0.36CDN ($1US = $2.78CND). The U.S. dollar recovered by the end of the Civil War in 1865 and the currencies traded at around par until the outbreak of the First World War.

Reference: Thanks to the Globe and Mail for the above picture (can you see where I added something?) and a few of the factoids above.


MadJenny said...

Question. Ever since the parity announcement came through, I've been hearing doom and gloom newcasts about how this situation is actually bad for Canadian industry. How so?

Spudman said...

Currncy value and the reaction of the public is proof that there is a "looking glass world". Two sides, much like coins.

As a "consumer", I have accepted the fact that exporters have ridden piggyback all the way to the bank for thirty years. Now that the "exporter" must walk on two feet, there is a lot of crying over the hot coals.

Locally, we have some very successful companies (for example, Paderno Cookware in PEI) that buy raw materials in the US and sell to me, the Canadian consumer. Their management is rather upbeat over this whole thing.

Canadian Economist said...

Thank you for your question Madjenny and your comments spudman. I think I will post something more on how the exchange rate can affect the economy.

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