History of the Canadian Dollar Comparison to the American Dollar
The relationship between the Canadian dollar and the American dollar is a fascinating story reflecting global economic forces and geopolitical shifts. Over the years, the two currencies have traversed a tumultuous path, influenced by various economic factors such as commodity prices, interest rates, and geopolitical events. This article explores the history of this relationship, highlighting significant periods during which the Canadian dollar reached notable lows.
Recent Stability and Pandemic Impact
Since the beginning of the pandemic, the Canadian dollar has maintained a steady relationship with the US dollar, trading at approximately 0.74 cents relative to the greenback. This stability is a significant deviation from the earlier decades, when the Canadian dollar experienced considerable fluctuations. The comparison of the two currencies highlights the resilience of the Canadian economy during these challenging times.
The Super Commodity Cycle and Economic Turmoil
The early 1970s marked the start of a super commodity cycle, which began to reshape the economies of North America. In 1975, the US and Canadian dollars were at par, symbolizing a period of relative economic equilibrium. However, by 1980, the global economy entered a period of crisis, with oil prices spiking to $80 per barrel, gold peaking at $800 per ounce, and inflation rates soaring to alarming levels. This unprecedented economic condition led to significant interest rate hikes, with mortgage rates peaking at an alarming 18-21% in 1982.
This period of high inflation and interest rates forced the then-Canadian Liberal government led by Pierre Trudeau to take drastic measures. The Trudeau Liberals faced resistance from the Canadian electorate and eventually lost power. For the next 20 years, Canada grappled with a commodity price recession, affecting various sectors of the economy. The Canadian dollar reached its historical low, trading at just 0.62 cents to the US dollar. During this time, the economy shifted from an industrial focus to a high-tech revolution, with hopes of a brighter future.
The Technological Transformation and Economic Shocks
The 1990s saw a significant shift in the Canadian economy, as the industrial era gave way to a high-tech revolution. This transformation was marked by a collapse in high-tech sector investments in 2000, followed by a bottoming of oil prices at $10 per barrel in April 1998. Gold also experienced a notable decline, dropping to $250 per ounce before stabilizing around $400 per ounce.
One of the most significant shocks to the global economy was the 9/11 terrorist attacks in 2001, which resulted in a global economic downturn. Interest rates reached a historical low of 0.5%, and by April 2002, a period of economic recovery began, lasting until October 2008. This economic boom brought the Canadian and US dollars back to parity, demonstrating the resilience of these currencies in times of prosperity.
Recent Economic Boom and Geopolitical Challenges
From March 2009 onwards, quantitative easing policies in the US, such as QE1 and QE2, injected significant liquidity into the financial system. These monetary policies, coupled with a new global economic cycle, led to the Canadian dollar's stabilization at 0.74 cents relative to the US dollar. However, a new era of geopolitical challenges began in 2020, marked by global pandemics, supply chain disruptions, and a significant drop in oil prices to negative values due to oversupply and shortage issues.
The subsequent period of 2020 saw further economic downturns, with interest rates hitting an all-time low of zero. Despite these challenges, the Canadian dollar managed to hold steady. However, the past few years have brought new challenges, including a global shortage of goods and services, high inflation, and rapidly increasing interest rates. The Canadian dollar's value has remained relatively stable, measuring around 0.74 cents relative to the US dollar as of this writing.
Looking ahead, experts suggest that the current economic environment, characterized by high inflation and interest rates, may result in a so-called "blood in the streets" period, a term used to describe periods of economic and social unrest. The geopolitical context of the upcoming wars and escalating tensions further add to the uncertainty surrounding the future of the Canadian dollar.