In the phase of the terms of trade upswing, both our countries saw growth above average, interest and exchange rates rising and some upward pressure on inflation. There were, nonetheless, some differences. The Australian dollar did not rise as much as the Canadian dollar, which is a bit surprising given Australia’s greater rise in the terms of trade.
Australia also saw somewhat higher growth in demand on average during the 2002 to 2008 period than Canada. Associated with those trends was a more pronounced rise in inflation at the end of the upswing, which saw us deviate further from our inflation target than Canada (Graph 2).