The Canadian dollar has rode a roller coaster this past year with commodities driving down the value in the last quarter of 2008.
Oil and gas, short term interest rates differentials between Canada and the United States, commodities, and the United States currency against other countries were key indicators of where the Canadian currency was headed.
Commodity prices was the biggest indicator and as they went, so went the dollar, says Peter Hall, vice president and chief economist with Export Development Canada.
The dollar peaked in 2007 and enjoyed a great ride for most of 2008, but the most exciting and terrifying part is the descent, Hall says.
Within a month the dollar lost as much as it did post 1991, when it reached another of its peaks then fell slowly for three consecutive years.
"It is staggering to see how quickly the dollar has come down inside a number of weeks, but not surprising given the drivers and the way they were headed," Hall says.
Oil and gas is independent of other commodities. Initially, not many people thought oil prices were going to reach (US) $145a barrel by the middle of this year.
"Given that that was such a surprise, the currency is by definition going to be a surprise. There is no way of keeping the currency from reacting to such a sharp movement," Hall says.
It is difficult to pin point when the market is going to fall apart, but Hall went on record back in May stating the market is in "bubble territory" last May on CBC TV.
Commodity bubbles burst fast, he says and because the dollar is contingent on commodities, it deflates with the same speed, but it still surprised many analysts in the industry.
"Talk about an immediate change. It really is a measure of the extraordinary heights at which we fell," he says.
Throughout the world's 16-year expansion, a lot of profitability was made in spite of the 2001 blip. Temptation is hard to resist when the economy is doing so well, Hall says.
Adding a dose of monetary stimulus with low interest rates, after 2001, fanned the flames and prolonged the period of expansion.
"It helped to create the end-of-cycle bubble and at the same time it prolonged that end-of-cycle bubble where it extended the market cycle an extra five years. When you have a bubble that builds up over that amount of time you create a massive downside and that is what we hare living through now."
It is now evident the world will not snap out of this any time soon, Hall says.
Excesses must be worked off, not just in the United States or European housing markets, but in sectors everywhere.
"This is global."
An American consumer purchasing vast amounts of exported products from China, by extension, has exported that bubble, he says.
Not more than a few months back analysts were saying many global economies have decoupled from the United States and therefore the downturn will be isolated.
Those who were hoping against hope are really having to adjust the way they look at the world right now, Hall says.
The question remains how long it will this last. Hall is looking to the seven million excess housing units in United States as his reference point.
On a good year a turn over of seven million can be had, but this is not a good year, Hall says.
According to figures from the United States housing market, it will likely take until 2010 to work off the bubble excess and during such time the Canadian dollar will drift down modestly to 85 cents in 2009, then to 82 -83 cents in 2010, he expects.
But it is not all doom and gloom. A lower Canadian dollar has many manufacturers hopeful.
Before the global downturn occurred, 15 members of the Canadian Manufactured Housing Institute concentrated their marketing efforts in areas experiencing housing booms in Canada.
Today, they have enough orders to keep the factories going through 2009 in spite of the slowdown.
"The sky is not falling," Kathleen Maynard CEO of the institute says.
When the orders diminish in Canada, the members can make their way back to the United States' market, particularly now that the Canadian currency is so attractive, she says.
