Concerned over the galloping domestic inflation the Canadian authorities set up the Prices and Incomes Commission and launched a preventive attitude towards the financial policy in 1968. All these actions took place in Canada while the neighboring United States was following policies tending to expansion vis-à-vis the Vietnam War and an important national agenda of societal expenditure. Enhanced prices of different products coupled with a robust external requirement for Canadian raw materials or resources exports as well as automobiles resulted in a sudden and favorable shift in the country's current account balance - it soon changed from a substantial shortfall in 1969 to a huge surplus. In addition, substantial inflow of finances along with comparatively more appealing rates of interest offered in Canada exerted an ascendant pressure on the Canadian dollar as well as the country's reserve of international currencies. However, the ensuing foreign exchange inflows gave rise to apprehensions that the anti-inflationary attitude adopted by the Canadian federal government would require conciliation provided the authorities did not initiate any measure to make a higher evaluation of the Canadian dollar. At the same time, there were apprehensions that the mounting foreign exchange reserves was likely to set in motion anticipations relating to a reassessment of the Canadian dollar. And this in turn would promote, albeit temporarily, tentative capital inflows into Canada.
As a result, the Canadian authorities notified the International Monetary Fund regarding their resolution to establish a floating exchange rate for the Canadian dollar and, at the same time, assured the IMF that they would also discharge their responsibilities and commitment to the world financial organization immediately when the situation allowed them to do so. Alongside, the Bank of Canada also reduced their bank rate from 7.5 per cent to 7 per cent with a view to discouraging the Canadian inhabitants to accept loans from foreign capital markets. Apart from making the foreign loans less appealing to the Canadians, the drop in the bank rate also aimed at restraining the inflow of finances that had so far been backing the Canadian dollar.
In fact, the decision to set up a floating or flexible exchange rate for the Canadian dollar was taken somewhat reluctantly by the government. However, Benson was of the view that there was no other alternative available if the government had to restrain the increasing inflation. Although he was optimistic of reinstating a fixed exchange rate for the currency at the earliest possible opportunity, Benson was also apprehensive of an untimely fixing of the foreign exchange rate of the Canadian dollar that the government would ultimately not be able to preserve.
Like in the instance of 1950 when the Canadian authorities established a flexible exchange rate for the currency while retaining the controls on foreign exchange, this time too the government mulled over several other alternative measures, but ultimately discarded them all. The government realized that protecting the prevalent par value of the Canadian dollar was unsustainable as doing so would necessitate immense involvement in foreign exchange. In such a situation, funding would become thorny without undertaking the risk of a financial increase that would again worsen the current inflationary strains. The Canadian authorities also disapproved the proposal for a new elevated par value as it would possibly provoke additional upward speculative strain and be viewed by the market partakers as an initial move rather than a permanent transformation. Even the idea of extending the variation band of the exchange rate in the order of the prevailing 2 per cent to 5 per cent was also discarded on similar grounds. In fact, the Canadian authorities also mulled over the idea of requesting the United States to review Canada's exclusion from the U.S. Interest Equalization Tax. In effect, this would bring the Canadian residents under the purview of the tax and would have to spend more to borrow from the foreign capital markets. Consequently, the action would also lower the inflow of finances into Canada. Following prolonged deliberations on the issue, this idea was also eventually discarded owing to the Canadian authorities' worries that such a move would have a harmful influence on borrowings by the Canadian provincial governments in the United States capital markets.
Finally, identifying the requirement for a noteworthy increase in the valuation of the Canadian dollar, authorities of the Bank of Canada found it worthwhile to set up a new par value of the currency at US$0.95 with a broader exchange rate variation band of ± 2 per cent. It was found that compared to a provisional flexible exchange rate, a permanent exchange rate was globally more admissible. In addition, as the lower foreign exchange intercession limit of approximately US$0.9325 would have been similar to the prevailing higher intervention control, such a predetermined rate would even be acknowledged by the intellectuals who also supported a 'crawling peg' (an exchange rate adjustment technique whereby the par value of a fixed exchange rate is permitted to vary within a definite range of values). The latest peg or a predetermined fixed exchange rate was also considered to be acceptable as it would maintain the precise commitments of the government vis-à-vis the foreign exchange rate to the International Monetary Fund. This was primarily because the new peg was in harmony with the government's compulsions with the global financial organization. At the same time, the government was also apprehensive that like in the latter part of the 1950s, establishing a flexible exchange rate for the Canadian dollar would possibly promote an unacceptable combination of economic policies.
In view of these developments, the International Monetary Fund advised the Canadian authorities to set up a fresh par value for the Canadian dollar. In fact, the IMF authorities were worried over the ambiguity of Canada's obligation to revert to a fixed foreign exchange rate apprehending that the flexible exchange rate established by the country would eventually turn out to be an enduring measure as was the case all through the 1950s. At the same time, the management of the global financial organization was of the view that the initiatives taken by Canada would lead to insecurity in the worldwide financial arrangement and have a wider pessimistic impact on the Bretton Woods system that advocated a fixed exchange rate. In fact, the Bretton Woods system was already under significant strain with many nations opting for a flexible exchange rate with a view to support their currencies in the face of inflation. However, the IMF's request for a fixed exchange rate was rejected by the Canadian authorities who underlined the need for preserving enough control of national demand for carrying on their encounter against increasing inflation.
The value of the Canadian dollar increased significantly and steadily soon after the government declared that it would allow a flexible foreign exchange rate for the currency. In fact, the value of the Canadian dollar approximately rose by 5 per cent to be equivalent to around US$0.97. The value of the Canadian dollar kept on rising upwards all through the autumn of 1970 and in 1971 to operate in a comparatively slender assortment between US$0.98 and US$0.99. In 1972, the Canadian dollar operated in complete equality with the U.S. dollar and on April 25, 1974, it touched a new high of US$1.0443.
In fact, a strong international demand for Canadian raw material exports was largely responsible for the potency of the Canadian dollar all through this phase. Actually, the strong global demand for the Canadian raw materials also enhanced their prices in the international markets. In addition, there was a surge in the inflow of finances into Canada during this period. To some extent, this was a sign of the fact that the three-fold hike in oil prices that took place all through 1973 would have a lesser impact on Canada's balance of payments (accounting record of all transactions made by a country over a certain time period) compared to other prominent industrialized nations. The impact would also be less because Canada was an insignificant importer of oil.
In addition, the strength of the Canadian dollar all through the early phase of the 1970s can also be attributed to the common debility of the United States' dollar against all other important currencies of the world. This was primarily owing to gradual disintegration of the Bretton Woods system of fixed exchange rates for currencies. On August 15, 1971, the United States postponed the exchangeability of its currency in gold and enforced a 10 per cent surcharge (additional tax) on all licensed imports as the shortfall in the U.S. balance of payments extended to exceptional levels that were never witnessed before. The U.S. initiative led to a series of reassessments of all prominent currencies worldwide. Eventually, all key industrialized nations signed the Smithsonian Agreement on December 18, 1971 consenting to a new model of equalities for all important currencies, barring the Canadian dollar, with a variation limit of ± 2.25 per cent. As a result, the U.S. dollar too was undervalued by 8.57 per cent vis-à-vis gold, but was still not interchangeable with gold. Nevertheless, even this desperate endeavor to revive the Bretton Woods system for fixed exchange rates proved to be futile. And, as a result, all major currencies of the world adopted floating exchange rates vis-à-vis the U.S. dollar in 1973.
Interestingly enough, the increasing value of the Canadian dollar in comparison to the U.S. currency throughout this phase made the Canadian authorities apprehensive of the influence of a superior dollar on Canada's export firms when the country was experiencing a comparatively soaring unemployment rate. The Canadian authorities studied a number of ideas to overcome the problem, but all of them were ultimately rejected either on the ground that they were not feasible or detrimental. The several measures examined by the Canadian authorities comprised beginning a dual exchange rate arrangement, making use of moral suasion (tactical coercing) on the banks persuading them to restrict the dereliction of their respective reserves of foreign currency as well as the government domination on the sale of all new editions of the Canadian securities to the non-residents. However, the Canadian authorities did not follow any of these ideas or proposals. Nevertheless, as per the provisions in the Winnipeg Agreement signed on June 12, 1972, all chartered banks in Canada along with the consent of the Canadian Minister of Finance agreed to execute a ceiling on the interest rates on large and provisional (below a year) bank deposits. According to the federal government authorities, this agreement aimed at lowering the progression of the increase in the Canadian short-term interest rates. The ascendant strain on the Canadian dollar received some relief owing to the lesser short-term interest fees on bank deposits in Canada as well as the more slender degree of difference in the interest rates with the neighboring United States.
It is important to mention here that the financial policy in Canada during this period was more friendly compared to what it was supposed to be in the prevailing situations. To some extent this was possible since the Bank of Canada endeavored to restrain the ascendant pressure on the Canadian dollar and also prop up the combined demand for Canadian raw material exports as the international fiscal system became sluggish owing to the steep hike in oil prices that upset the economies of most nations. In retrospection, Bank of Canada was unsuccessful in identifying the degree to which the country's financial system, on the whole, and the labor market, particularly, was gradually falling prey to pressures. Talking in simple terms, the Canadian financial system was functioning almost at it optimum limits compared to what was previously accepted as true. Canada's financial strategies too tended to be of an expansive nature all through this phase. Although the economic slump in Canada during the period between 1974 and 1975 was comparatively superficial to what was prevailing in the neighboring United States during this time owing to lesser friendly financial policies there, the strains of inflation continued to deepen in Canada.
The Canadian government launched an anti-inflation program comprising wage and price regulations with a view to deal with the inflationary strains on the currency in the latter part of 1975. Simultaneously, the Bank of Canada also approved a target for the slender financial accrue called the 'M1' with the aim of progressively lessening the speed of the growth of money and thereby curbing inflation or the soaring prices. As a result of these measures, the Canadian dollar recovered in 1976, but not before a temporary phase of abating in 1975 and declining in value below equivalence with its United States counterpart. Extensive degrees of differences in the interest rates with the neighboring United States offered significant back up for the Canadian dollar and this was augmented as the provincial governments, municipal authorities as well as the different corporations in Canada accepting large loans from the foreign capital markets. Even the foreigners' craving for the Canadian securities increased manifold with the authorities withdrawing the 15 per cent federal non-resident maintenance tax on corporate bonds for five years and more in 1975. In fact, such large scale borrowings from the foreign capital markets aided in camouflaging the impacts of the weakening Canadian financial essentials on the Canadian dollar.
Following impulsive trading during the summer of 1976, the Canadian dollar gained in strength and its value ascended to be at par with US$1.03. Nevertheless, the appointment of a Parti Quebecois on November 15, 1976 provoked the market participants to undertake a major re-evaluation of the potentials of the Canadian dollar. Several factors, including the political ambiguity, reduction in the prices of non-energy items, apprehensions over Canada's external aggressiveness in connection with the escalating prices and wage strains as well as a considerable shortfall in the current account, triggered a delayed competitive sale or auction of the Canadian dollar.
The value of the Canadian dollar weakened considerably during the two subsequent years, dropping to below US$0.84 during the closing phase of 1978. It is interesting to note that the value of the Canadian dollar declined despite the fact that the U.S. dollar itself was weakening in comparison to other major foreign currencies and regardless of the substantial exchange market involvement by the Bank of Canada in support of the federal government to prop up the Canadian dollar. In October 1977, the Canadian federal government set up a US$1.5 billion reserve in credit line with the Canadian banks with a view to refill its foreign asset reserves. This resource was enhanced to US$2.5 billion in April 1977. In June 1978, the Canadian federal government also set up a parallel US$3 billion reserve with a conglomerate of banks from the United States. In addition, the Canadian federal government accepted huge loans from the foreign capital markets in New York and Germany to aid in the funding the shortfall in the current account so as to prop up the Canadian dollar. At the same time, all through 1978, the Bank of Canada also made the financial policy tighter as the bank rate was hiked by 375 base points to 11.25 per cent in the start of January 1979. Next, during the early months of 1979, the Canadian federal government once again made fresh overseas borrowings, now from the capital markets in Japan and Switzerland.
The strains of inflation failed to in spite of the efforts of the Canadian federal government's efforts in this regard as well as the Bank of Canada's move to make the economic policies tighter. Although the pace of financial expansion was aligned to the declared targets, the Bank Rate, which was increased to 11.25 in January 1979 rose further to touch the 14 per cent mark by the close of 1979. In such an environment, the Canadian dollar still continued to be stable and by the end of 1979, its value was very near to US$0.86.
All through the 1980s, the Canadian dollar operated in a broad assortment. While the value of the currency declined for the period of the first half of the 1980s, it made robust progress during the second half. In the initial phase, the policy of the Bank of Canada was to mitigate the consequences of huge fluctuations in the U.S. interest rates on Canada. The Bank of Canada was successful in its objective by dividing the impacts - while some of it was taken on the interest rates, the remaining on the exchange rate. It is important to note that the Bank of Canada required more flexibility to be able to react in this manner and hence the Bank Rate was connected to the rate for three-month Treasury bills in March 1980. These three-month Treasury bills were set up at the weekly bill public sales.
With the Bank Rate reaching an unprecedented high of 21.24 per cent in the early days of August 1981, the short-term interest rates in Canada increased steeply during the period of 1980 and continuing till the summer of 1981. However, after August 1981, the Bank Rate dropped to a moderate level and remained there for the rest of the year. Simultaneously, the Canadian dollar experienced a noteworthy downward strain. Several vital factors were responsible for the weakening of the Canadian dollar and these included the political apprehensions prior to the Quebec plebiscite or referendum in May 1980, diminishing prices for the non-energy export items from Canada as well as the Canadian federal government's decision to launch of the National Energy Program in October 1980. The last factor stimulated a flutter of acquisitions and takeovers of the firms owned by overseas businessmen by the Canadian-owned companies, especially those in the oil sector. By the middle of 1981, Canadian officials turned out to be apprehensive over the fact that the decline in the exchange rate would start providing for itself. As a result, the Canadian Minister of Finance directed the chartered banks to lessen amount of loans they offered to fund corporate acquisitions that would entail exodus of finances from Canada.
On the other hand, all through 1980, trust on the Canadian dollar kept on wearing away owing to apprehensions regarding the Canadian authorities' obligations towards an anti-inflationary policy attitude as well as the termination of several major energy ventures. As a result, the value of the dollar declined to less than US$0.77 and in such a situation, the Bank of Canada permitted an increase in the short-term interest rates with a view to put off any further decline in the value of the Canadian dollar and prevent the currency from becoming a speculative disarray. In November 1982, the Bank of Canada also unwillingly declared that it would not aim for M1 any longer while continuing to combat inflation. It is important to mention here that, at the same time, the Canadian authorities' move to reconstruct the financial system had actually destabilized the connection between the growth of money and inflation. Several studies conducted by academics disclosed that the necessity of minor modifications in the interest rates to maintain the growth of money on target was actually not enough either to influence the prices or the productivity. In his statement before the House of Commons Finance Committee, Bank of Canada Governor Bouey remarked that they did not dispose of M1, but M1 had discarded them. In effect, this denoted that the slender or insignificant growth in money was actually unsuccessful in providing a dependable economic base.
The initiatives of the Bank of Canada as well as the encouraging market response to the restrictive budget presented by the Canadian federal government helped the currency to make substantial progress and be valued at US$0.82. However, this strengthening of the Canadian dollar proved to be a temporary affair. While the Canadian dollar maintained its own value in comparison to the U.S. dollar for the major period of time in 1993, its value declined sharply in 1984 and during the first phase of 1985 as the country witnessed an outflow of finances to the United States which offered high interest rates as well as a favorable environment for investments. It needs to be mentioned here that Canada alone did not experience a decline in the value of its currency following outflows of capital to the United States. In fact, the situation was the same will all major currencies of the world during this period.
The major industrialized nations that comprised the G-5 signed the Plaza Accord in September 1985 in the midst of increasing worries regarding international external disparities and tentative strains in support of the U.S. dollar agreeing to create a systematic depreciation of the U.S. dollar by means of a blend of more concerted interference in the foreign exchange rate as well as the national policy determination. While the value of the foreign currencies began to move upwards in comparison to the U.S. dollar, the value of the Canadian dollar kept on declining vis-à-vis the U.S. dollar owing to apprehensions regarding the deteriorating economic and monetary potentials in Canada as well as the diminishing prices of different products. In addition, it is believed that the collapse of two minor Canadian banks - the Northland Bank and the Canadian Commercial Bank - during this period may perhaps provisionally added to the factors that led to the weakening of the Canadian dollar.
On February 4, 1986, the value of the Canadian dollar declined to the then record low and was equivalent to US$0.6913. However, the currency gained strength and bounced back owing to a combined approach of forceful intercession in the foreign exchange market, steeply high interest charges as well as the Canadian federal government's declaration to obtain huge overseas loans. Following these initiatives, at first the Canadian dollar became stable at around US$0.72 and then picked up an upward momentum vis-à-vis the U.S. dollar. This upward trend in the value of the Canadian dollar continued for the remaining part of the 1980s.
A year later, in February 1987, Canada and other prominent industrial nations signed the Louvre Accords with a view to strengthen the strategy synchronization among the key industrial countries and make the foreign exchange rates more stable. In accordance with the stipulations of the agreement, on a number of instances Canada took part in combined interferences to back the U.S. dollar against the mark of Germany and Japan's yen. The Canadian dollar plunged for a brief period following a 'crash' in the stock market in October. It may be mentioned here that the Toronto Stock Exchange (TSE) tumbled by around 17 per cent for two days, but picked up soon.
Several aspects were responsible for the Canadian dollar remaining potent all through 1988 and 1989. The factors comprised an upbeat fiscal system guided by a recovery in the prices of goods, an expansionary financial approach at the federal as well as the provincial levels and a considerable stiffening of the financial policy that was intended to cool an overheated fiscal system and lower the inflationary strains. In fact, even the encouraging reactions from the investors over Canada signing the Free Trade Agreement (FTA) with the United States in 1988 also propped up the Canadian dollar to a certain extent. During the end of the 1980s, the Canadian dollar was valued at US$0.8632.
Although the early part of the 1990s saw the Canadian dollar to be very potent, the value of the currency declined in comparison to the U.S. dollar during the major part of the decade. On November 4, 1991, the Canadian dollar was at a high of US$0.8934, but dropped to US$0.6929 by the time the decade came to an end.
It may be mentioned here that during the course of 1990 as well as most part of 1991, the value of the Canadian dollar increased in comparison to the U.S. dollar and also many other key foreign currencies. To a great extent this phenomenon was a fall-out of making the financial policy tighter in an environment of inflation with the Canadian authorities declaring the decreasing targets in February 1991 as well as the expansion of the degree of differences of the interest charges that strongly backed the Canadian currency.
In the autumn of 1991, the Canadian dollar touched its peak vis-à-vis the U.S. dollar since its last highest value in comparison to the U.S. dollar since the later part of the 1970s. However, the currency began to decline in value, dropping drastically for the period of 1992 to be valued at US$0.7868 by the end of the year. In fact, several aspects were mirrored from the steady, but prolonged weakening of the Canadian dollar's value that persisted all through 1993 and 1994. As the inflation dropped provisionally even lower than the intended limit fixed in 1991amid considerable unutilized facility in the fiscal system, the Bank of Canada looked forward to simpler financial state-of-affairs by means of lesser interest charges.
At the same time, the descending strain on the Canadian dollar manifested mounting apprehensions regarding the unrelenting problems associated with the budget at the federal and provincial levels, diminishing prices of products and huge shortfalls in the current account. Worse still, even the global financial situation was also not encouraging for the Canadian dollar. In fact, the Exchange Rate Mechanism in Europe endured recurring criticisms from all concerned during the course of 1992 and 1993, while the interest charges continued to go up in the United States all through 1994. In addition, the peso emergency that took place in Mexico during 1994 and the early part of 1995 also attracted the notice of the investors towards the failings of the Canadian basic financial guidelines, particularly the huge shortfalls in the country's economic and current account.
All through 1995 and 1996, the Canadian dollar was stabilized to some extent owing to several factors, but this was only a temporary affair. These aspects comprised an enhanced interest rate on short-term deposits, especially during the early stages, proof of the fact that the Canadian authorities were initiating steps to address the financial problems, a remarkable progress in the country's balance of payments position, the reinforcement of the prices of the commodities to some extent as well as a reduced emphasis on the constitutional matters. During most part of this period, the Canadian dollar operated at a comparatively marginal limit nearly at US$0.73.
In spite of the potent national economic elements, including near to the ground inflation, reasonable financial growth and heavy government funding, the value of the Canadian dollar began to decline once again during 1997 and this became more and more obvious in 1998. In fact, to a certain extent, this time too the external factors such as diminishing prices of commodities in the export market could be held responsible for the decline in the value of the Canadian dollar. The price of products at first began to decline in the summer of 1997, and then dropped drastically as a result of a financial and monetary catastrophe in the budding markets in distant Asia. It is interesting to note that the unsteady Canadian dollar functioned as a cushion and aided in alleviating the effect of the lesser prices of the products in the export market on combined requirement and actions in Canada as well.
The wide degree of difference in the decline of the interest charges that had previously shown up between the Canadian and the U.S. financial instruments (an instrument possessing monetary value or recording a fiscal deal) were also not in favor of the Canadian dollar, while their function was to secure and shelter the U.S. dollar through the global economic emergencies. Soaring prices of the U.S. equities that mirrored an enhanced development in productivity and huge inflow of finances to the high technology segment presented an ideal environment that backed the U.S. dollar vis-à-vis other major currencies of the world, together with the Canadian dollar. This aspect continued for the remaining part of the 1990s.
The emergency in the fiscal systems of the budding markets worldwide expanded and deepened further all through the summer of 1998 owing to the failure of Russia to repay its debts as well as mounting apprehensions regarding several Latin American nations. On August 27, 1998, the value of the Canadian dollar dropped to a low point of US$0.6311. However, the currency strengthened to a certain extent subsequent to forceful actions initiated by the Bank of Canada. The Bank's actions comprised increase of one per cent point in short-term interest charges and a substantial interference n the foreign exchange market. Considering the declining prices of products worldwide, it was not surprising to find the Canadian dollar to be weak. This aspect had made the Canadian authorities apprehensive regarding the hazardous dividends on the Canadian-dollar advantages and the stockholders' probable lack of trust on the Canadian-dollar fiscal instruments.
On the other hand, the move by the Federal Reserve Bank to cut the interest rates combined with the restoration of a small degree of steadiness in the economic markets owing to the activities of the Federal Reserve Bank to soothe the markets subsequent to the disintegration of Long-Term Capital Management (LTCM) enabled the Bank of Canada to lower the interest rates in Canada without denting the markets' faith on the Canadian dollar. As the global economic situation improved in the last year of the millennium, the Canadian dollar was able to recover a quantity of its pervious deficits against the U.S. dollar. Such an encouraging economic environment once again attracted the attention of the investors for whom Canada's potent financial elements, comprising a lessening shortfall of current account and the intensification of the international prices of the country's commodities became the center of attraction.
It has been interesting to note that the value of the Canadian dollar has been fluctuating - sometimes vigorously and marginally at other times - ever since it was issued by the Bank of Canada. Thus, it is not surprising to find that following a brief period of buoyancy, during 2000 and 2001, the Canadian dollar once again showed its tendency to decline vis-à-vis the U.S. currency. On January 21, 2002, the Canadian dollar touched its nadir, an all time low of US$0.6179. On the other hand, the U.S. dollar climbed during most part of this period often attaining high points several times a year. The vigorous growth of the U.S. dollar was possible owing to the steady and strong inflow of private funds into the U.S. during this period as well as robust profits from productions. However, the U.S. dollar came under a downward strain following a fall in the prices of commodities all over the world owing to a slump in the global fiscal system. As expected, the global economic slow down also affected the Canadian dollar adversely. Another issue that shook the capital markets worldwide during this period was the terrorist attacks in the United States on September 11 that year.
It may be noted here that the central banks worldwide reduced the interest charges to prop up demand and offer the desired liquidity to the markets in the backdrop of such financial and political insecurities. Following this trend, the Bank of Canada also lowered the interest rates on short-term deposits by 375 point during the whole of 2001 and the early part of 2002.
The Canadian dollar became stable and started to pick up gradually all through 2002 with the fiscal system recovering worldwide and while value of the U.S. dollar began to decline in comparison to other major currencies. The value of the Canadian dollar escalated steeply all through 2003 and 2004 and peaked above US$0.84 in November 2004 - the highest point touched by the Canadian dollar in the past 13 years. In fact, in this case, the rise of the Canadian dollar was a 'through-to-peak' escalation of approximately 38 per cent in just two years. In other words, the strengthening of the Canadian dollar mirrored a vigorous global fiscal system that was spearheaded by the United States and the budding Asian economies, especially China as they augmented the values of the country's commodity exports. At the same time, increasing apprehensions of the investors regarding the expanding shortfall in the U.S. current account lead to the weakening of the U.S. dollar vis-à-vis all other major currencies of the world. To some extent, the Canadian dollar became stable during the first half of 2005, while the U.S. currency recovered reasonably against all key currencies during this period. Supported by the escalating interest charges of the U.S. dollar as well as the growing prices of the energy export items, the Canadian dollar once again started to reinforce during the summer of 2005. In fact, the Canadian dollar not only consolidated in comparison to its U.S. counterpart, but also against all major currencies reaching a new level of US$0.8630 on September 30, 2005. For most of the part during the later half of October 2005, the Canadian dollar was operating in a range between US$0.84 and US$0.85 - much lower than the high points touched by it previously. This was primarily owing to the fact that the prices of the energy items exported by Canada weakened considerably during this period.