Canadian GDPThe output or GDP of Canada has increasedfrom 1995 to 1999. This means that more people became employed orproductivity has risen. With the GDP on the rise, Canada is ableto buy more because people will have more money from work.
This wouldappreciate the dollar because Canadians need the U. S. dollar to purchaseour goods. Demand, on the other hand, has somewhatstayed the same. There were periods when it was up and periods whenit was down. When the demand for passenger cars was falling, Canadianswere looking elsewhere to buy their cars.
This factor would, mostlikely appreciate the dollar because, one again, the Canadians would needthe U. S. dollar to buy our cars. When the demand was up, the oppositesituation would happen. The unemployment rate for Canada fell,possible because of increased advertisement. When the unemploymentof a country is low, output and productivity are raising.
I statedbefore, as output rises, imports will also rise. This is due to theincrease of money in the country. The dollar will appreciate relativeto the Canadian dollar. Canada’s inflation has risen 7% in thelast 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 mustlook 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 thatproduct price of the U. S. has risen faster to that of Canada. Thismeans that Canada was possible taking there business elsewhere, causingthe dollar to depreciate. The interest rates of Canada are clearlyon the downfall.
Less people are putting their money into the investingsector. When the interest decreases, it is likely that Canada isputting their money into the U. S. This would appreciate the dollarbecause 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 decreaseddrastically from 1996 to 1997. This, most likely, means their importswere greater than their exports. You would be able to see this ontheir goods and service balance.
I would assume that they do havea merchandise trade deficit because Canada is getting money from investingincome. I see this because there is little investing domestically. Therefore, Canada must be making their money abroad. This would appreciatethe dollar because Canada is depending on our currency to buy our products.
The Pacific Exchange Rate graph showsthe U. S. dollar appreciating. The exchange rate started at $. 71 in1995 and is currently around $.
676. Most of the indicators show thedollar appreciating to the Canadian currency. One strong indicationof the dollar appreciation is that of the financial market. You cansee the share prices decrease. At the same time the dollar appreciateddrastically. This could have been due to the flooding of U.
S. marketsfor higher rates of return.
