MRO Magazine

Why the Loonie soared in 2003

Toronto, ON -- Last year was one of rapid appreciation for the Canadian dollar, a.k.a. the "loonie." The Canadian d...


February 5, 2004
By MRO Magazine

Toronto, ON — Last year was one of rapid appreciation for the Canadian dollar, a.k.a. the “loonie.” The Canadian dollar began 2003 at 63.4 U.S. cents and appreciated at a fairly strong and steady pace over the year, closing at 77.1 cents, an appreciation of 21.6%. Although an appreciation was expected, this pace greatly exceeded any forecasts. For example, Global Insight ( projected that the loonie would move up to just the 70-cent level by the end of 2003.

Last year’s performance was a distinct departure from the loonie’s performance of the past decade, when it tumbled from 87 U.S. cents in 1991 to 64 cents in 2002, falling in virtually every year of the decade. At 77 cents at the start of 2004, the Canadian dollar is now back to its 1993 level. While there are many reasons for this miserable performance, falling commodity prices, a weak fiscal performance, and relatively low interest rates were major factors in many of these years.

The principal reason for its appreciation in 2003 was international investors’ rebalancing away from the U.S. dollar, in response to concerns over the U.S. current account and fiscal deficits. Indeed, virtually all major currencies appreciated versus the U.S. dollar last year. For example, the euro appreciated about 20% and the yen rose about 10%. Strong economic fundamentals, rising commodity prices, and a large interest rate gap over U.S. rates provided upward pressure on the loonie relative to other major currencies.

About 85% of Canada’s exports are destined for the United States, and these account for about 30% of Canadian GDP. Canada significantly lagged the United States in labour productivity gains in both 2002 and 2003. As such, Canadian producers have lost some of their competitiveness to U.S. producers for sales in both Canada and the United States. Consequently, Global Insight forecasts that the gap in GDP growth rates between the Canadian and U.S. economies will be unusually wide in 2004, with Canada expanding only 3.6%, compared with the U.S. rate of 4.7%.


The Canadian dollar appreciated more than other major currencies in 2003:
Currency / Percent change relative to U.S. dollar
Canadian Dollar / +22%
Euro / +20%
British Pound / +10%
Japanese Yen / +10%

Dale Orr is the managing director of Global Insight Canada, Toronto, Ont. The firm’s Canadian Service division provides clients with analysis, data, and forecasts for the Canadian economy and the individual provinces. Its clients use the Canadian Service to assess economic, financial and investment risk, as well as business opportunities. The Canadian Service Forecasting Team has won a KPMG award for forecast accuracy three times over the past decade. For more information, visit