May 15, 2008
Economy at a Glance - May 15, 2008
Greenback and loonie joined at the hip since last September
Prepared by Alex Carrick - Chief Economist, CanaData
From January 2003 to September 2008, the Canadian dollar increased in value by slightly more than 50% versus the U.S. dollar. The inverse was that the U.S. dollar dropped in value by about one-third versus the Canadian dollar.
During those nearly five years, profits reported by subsidiaries of American companies located in Canada had a built-in upward advantage due to the currency value change. Since September of last year, however, the two currencies have been joined at the hip. They have moved in tandem, and mainly downward, versus other major currencies around the world.
The loonie rose to parity with the greenback on the wings of high oil prices. However, last fall was also the time when concerns about a U.S. slowdown began to appear. The Canadian economy is still highly tied to what happens in the United States and the economic prospects for both countries were downgraded by international currency traders.
Another significant factor has been the actions taken by central bankers in both countries. Interest rates have been lowered aggressively in the U.S., and Canada has followed along behind, although a good deal more timidly. By comparison, interest rates in Europe have been left alone at relatively high levels, to contend with what is viewed as a serious inflation threat.
For more articles by Alex Carrick on the Canadian and U.S. economies, visit his
blog and Market Insights.
Data source: www.x-rates.com.
Chart: Reed Construction Data - CanaData.
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