Essay on Relationship Between Rising Us Unemployment and the Canadian Dollar

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Is there a relationship between rising US unemployment and the rise of the Canadian dollar?

Canada’s financial stability depends on the health of America’s economy, as international trade accounts for 45% of Canada’s Gross Domestic Product (GDP) and 79% of exports are to the United States. Canadian and American unemployment rates are positively correlated for that reason, as exemplified in early 2009. Canada’s unemployment rate quickly steepened as the United States’ rate gradually increased to about 10% (refer to graph 1 and 2). During this time, Canada’s growing trade surplus became a deficit in only a few months (refer to graph 3). From this data, one can determine that Canada’s exports decreased rapidly due to rising economic …show more content…
The U.S. dollar decreases in value when unemployment is high because the government receives less tax revenue. If the U.S. dollar falls, Americans have less purchasing power and Canadian commodities become more expensive. As a result, U.S. consumers will be discouraged to spend and/or import from Canada. Additionally, a weaker U.S. dollar will decrease domestic expenditures in Canada because Canadians can purchase more for their dollar in the United States. If consumer spending and exports decrease, Canada’s economy can decline simultaneously with the American economy. As mentioned above, international trade accounts for 45% of Canada’s GDP. On April 1, 2011, the loonie hit a three-year high after U.S. employment increased and the jobless rate decreased. The dollar increase from a decrease in U.S. unemployment exemplifies America and Canada’s trading partnership and coinciding economies.

The strength of the U.S. economy is important for Canada’s trade, economy and exchange rate. Increasing U.S. unemployment can positively or negatively influence the value of the loonie. Canada’s dollar can increase due to demand from buyers looking to invest in a stable economy with low risk. On the other hand, Canada’s GDP is dependent on U.S. trade. If less Americans are purchasing goods in Canada due to increased unemployment, the Canadian dollar will fall. Therefore, it is inconclusive that unemployment rates solely influence the rise of the Canadian dollar. There are many other
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