The Canadian currency for the past years has not been stable in the forex market and stock markets. There is strong relationship between the dollar and the forex movement. For instance, the dollar at 15: 15 GMT recorded losses at the start of October. The decline of Canadian dollar may attributed to the built against major currencies such as U.S dollar and euro. Therefore, the change in dollar may be attributed to the government manipulation. In these sense, the Federal Reserve appeared to be in position to initiate second rebound of quantitative easing, this was a great to the Canadian dollar. The economy of the United States was not stable this affected major currencies including the Canadian dollar. In this case, the labor market had suffered greatly. The Canadian dollar for some time had lacked traditional interest's rate endorsement and the new situations were likely to persist. With the increase in the value of United States dollar, the currency fluctuation became popular and majority of international equity funds were now present in the equity currency flavors. The currency fluctuations had an effect on the equity performance (Learning resources 34-55).
The government policies during this period that it encouraged free trade but those items that were imported required licenses for some of their products. Because of the depreciation of dollar, the central government took some measures to rectify the situation in that the sale of bank of Canada to the market was seen as step towards adjusting the interest's rate of the bank. The amount of the foreign currency in circulation was not allowed as legal tender but foreign currencies could only be exchanged in businesses and legal institutions. The government encouraged local investors to invest in local businesses so as to improve the economy of the country. The government had positive attitude as it was willing to grant general support and incentives in order to create a good climate for investment in Canada.
Fiscal policy is the situation whereby the situation whereby the governments use expenditures and revenue collected to influence the economy by controlling money supply and interests rates. Fiscal policy is based on two major instruments which includes taxation and government expenditure. The expansionary fiscal policies is where the government attempts to increase the aggregate demand where the government will spend a lot and lower taxes this stimulates economic growth because of increase in aggregate demand. The expansionary fiscal policies had a negative impact on the Canadian dollar in that there was decrease in net exports which had a negative impact on the national output. The government borrowing increase interests rates and thus attracted foreign capital from foreign investors.
The reason was that all other things were same and equal; bonds that the Canadian government issued offered high rates of return. The other problems that came as a result of expansionary fiscal policy was the increase in inflation and detectable effects in the economy (John 44-67). The employment of workers who had a job, the stimulus increased labor demand while labor supply remained fixed this led to wage inflation and hence price inflation. This showed consumer behavior towards the policy, people lost confidence because of unemployment and their expectation of the economy to improve seemed doomed. As a result, the GDP was reported to have dropped because the local people were not willing to invest in the local market and the influence of foreign investors. More so, there was government deficit because of high low level of private savings.
During this time, Canadian dollar was depreciating at higher rate there are some monetary policies that were applied in order to save the situation. Monetary policy is the process where the central bank controls the supply of money targeting increase in interest in order to attain its goals and precipitate economic growth. The expansionary monetary policy was used to tackle the problem of unemployment by lowering interest rates. The government increased flow of money to local businesses in order to boost local economy. The government and financial institutions did not allow capital outflow because this could have led to much money in the market thus weakening the currency value. On forex stock exchange, the Canadian dollar had weakened against other currencies like the Japanese yen and U.S dollar. The reason for its depreciation was articulated to high inflation rate in Canada and the rapid growth of foreign economies (Farrokh 56-78).
International trade helped to revive the depreciating value of the Canadian dollar because of the big interests they got from their exports. For instance, natural gas and oil. Canada's trading partners are from Asia, United States and Europe. This increased employment rate in Canada since international involve both exchange of goods and services. Canada is blessed with natural resources in that it produces a lot of energy. For instance, it produced 19.1 quadrillion of British thermal units and also it exports its energy to United States. This tried to make the dollar improve because of the increase in the prices of energy in United States, Britain and Asia. Canada's exports in agricultural products included wheat, meat, livestock, oil seeds, vegetables, tobacco and fruits.
The financial crisis was a nightmare to the global economy. The Canadian economy was not spared either but it did not suffer too much because of indebtness. The financial institutions were caught napping in that there were tightened credit terms this indicated slower growth in consumer goods especially durable goods and investment. There was also the spillover in the economy of Canada this was as result in the problems in the U.S. Financial institutions tightened credit terms than ever before (Harry 45-56). The financial crisis led to depreciation of Canadian currency that had began to stabilize on forex stock exchange while the economy was stagnant. The Canadian began to appreciate when the U.S dollar began to depreciate because of increased house rents in United States and political climate that was unfavorable for economic growth. This had a positive impact to Canada because it could export and import goods from United States at a manageable rate.
Governments enacted policies in order to save financial institutions from being layoff some trade tariffs to provide a level playing field and encourage foreign investors. In the United States, there was bailout system to the financial institutions. In Canada, the government tried to contain the financial crisis through its indebtedness criteria which worked quite well making the Canadian dollar to flourish in stock exchange at the U.S dollar euro and other currencies were depreciating. There were adjustments and readjustments within the U.S readjustment program to tackle the financial crisis that was tearing its economy apart. For instance, there tax cuts to increase interest rates. This made major currencies to fluctuate on stock markets (Philip 66-79).