The dollar in the 21st century The Canadian dollar resumed its weakening trend in 2000 and 2001, and touched an all-time low of US$0.6179 o...
The dollar in the 21st century The Canadian dollar resumed its weakening trend in 2000 and 2001, and touched an all-time low of US$0.6179 on 21 January 2002. Through much of this period, the U.S. currency rose against all major currencies, reaching multi-year highs, supported by large private capital flows in the United States owing to continued robust U.S. growth and further strong productivity gains. A decline in commodity prices in 2001, caused by an abrupt slowdown of the global economy, led by the United States, also undermined the Canadian currency. In addition, markets were temporarily roiled by the terrorist attacks in the United States on 11 September. In this economically and politically uncertain environment, central banks around the world lowered interest rates to support demand and provide liquidity to markets. The Bank of Canada reduced short-term interest rates by 375 basis points through 2001 and early 2002. Through 2002, the Canadian dollar stabilized and then began to recover as the global economy picked up and as the U.S. dollar started to weaken against other currencies. It appreciated sharply through 2003 and 2004, peaking at over US$0.85 in November 2004, a level not seen for thirteen years. This was a trough-to-peak appreciation of roughly 38 per cent in only two years. The Canadian dollar’s 82 A History of the Canadian Dollar 93. LTCM was a well-respected hedge fund that included on its board two Nobel-Prize-winning economists,
Myron Scholes and Robert Merton. It was highly leveraged, with assets of about US$130 billion on a capital base of about US$5 billion. The fund incurred large losses on trades in the swap, bond, and equity markets that occurred when market liquidity dried up and spreads between government bonds and other instruments unexpectedly widened sharply. LTCM also incurred losses on its portfolio of Russian and other emerging-market debt following the Russian default. Editorial cartoon, 26 February 2002, Bruce MacKinnon/artizans.com rise reflected a robust global economy, led by the United States and emerging Asian markets (particularly China),
which boosted the prices of Canada’s commodity exports. As well, growing investor concerns about the widening U.S. current account deficit, undermined the U.S. unit against all major currencies. While the Canadian dollar settled back somewhat during the first half of 2005 as the U.S. dollar rallied modestly against all currencies, underpinned by rising U.S.-dollar interest rates, it began to strengthen again through the summer, supported by rising energy prices. Strengthening against all major currencies, the Canadian dollar touched a high of US$0.8630 on 30 September 2005. In late October, it was trading for the most part in a US$0.84–0.85 range, off its earlier highs as energy prices retreated
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