The output or GDP of Canada has increased from 1995 to 1999. This means that
more people became employed or productivity has risen. With the GDP on the
rise, Canada is able to buy more because people will have more money from
work. This would appreciate the dollar because Canadians need the U.S. dollar
to purchase our goods.
Demand, on the other hand, has somewhat stayed the same. There were periods
when it was up and periods when it was down. When the demand for passenger
cars was falling, Canadians were looking elsewhere to buy their cars. This
factor would, most likely appreciate the dollar because, one again, the
Canadians would need the U.S. dollar to buy our cars. When the demand was up,
the opposite situation would happen.
The unemployment rate for Canada fell, possible because of increased
advertisement. When the unemployment of a country is low, output and
productivity are raising. I stated before, as output rises, imports will also
rise. This is due to the increase of money in the country. The dollar will
appreciate relative to the Canadian dollar.
Canada’s inflation has risen 7% in the last five years. As the price of
Canada’s goods increase, the U.S. is looking elsewhere to buy its products.
The supply of the U.S. dollar would decrease in Canada and the U.S. dollar
would appreciate. In order to get an exact reading of the actions taken by
Canada, we must look at their inflation compared to the U.S. I looked at
http://www.stls.frb.org/fred/data/cpi/cpiaucsl, and I found that the U.S. had
an 11% inflation rate. This means that product price of the U.S. has risen
faster to that of Canada. This means that Canada was possible taking there
business elsewhere, causing the dollar to depreciate.
The interest rates of Canada are clearly on the downfall. Less people are
putting their money into the investing sector. When the interest decreases,
it is likely that Canada is putting their money into the U.S. This would
appreciate the dollar because Canada would need the U.S. currency to invest
in our country.
Canada is running a constant trade surplus. We must also look at the current
account balance of Canada. It decreased drastically from 1996 to 1997. This,
most likely, means their imports were greater than their exports. You would
be able to see this on their goods and service balance. I would assume that
they do have a merchandise trade deficit because Canada is getting money from
investing income. I see this because there is little investing domestically.
Therefore, Canada must be making their money abroad. This would appreciate
the dollar because Canada is depending on our currency to buy our products.
The Pacific Exchange Rate graph shows the U.S. dollar appreciating. The
exchange rate started at $.71 in 1995 and is currently around $.676. Most of
the indicators show the dollar appreciating to the Canadian currency. One
strong indication of the dollar appreciation is that of the financial market.
You can see the share prices decrease. At the same time the dollar
appreciated drastically. This could have been due to the flooding of U.S.
markets for higher rates of return.