Let me start with interest rates, because that's what we directly influence.
As you are aware, we have interest rates across the whole spectrum of the yield curve at almost historic lows. Indeed, we haven't seen rates this low since the 1950s. In part, those low rates are facilitating adjustments in the economy. You have to go back to the mid-fifties, to 1956-57, to see rates as low as we have. We have those low rates because we focused--and Canadians are confident that we focused--to hold inflation down so that we don't have an inflation premium. We also have rates that are at historic lows relative to rates in the United States.
So our rates as such, even though we've been raising them recently to take some of the excess liquidity out of the system, are extraordinarily low.
Let me turn now to the dollar. Because we have what we call “negative spreads”, or rates below U.S. rates, what we can do in setting interest rates to influence the dollar...to the extent that we can do that, of course, we are having an influence to hold that down a little bit. As I said, there are historically wide spreads in the negative direction at the moment.
Our analysis would indicate that most of the appreciation since the beginning of 2003 is being driven by changes in the real economy, both globally and domestically. We've had very sharply rising prices for metals and for energy. As you know, with Canada being a significant exporter of metals and energy, we have seen a very significant improvement in our terms of trade. That's good news, because collectively we're richer, but part of the adjustment to that means that the exchange rate appreciates.
That is actually appropriate in the sense that it's doing some of the work to balance demand and supply in our economy, but it is also signalling changes in relative prices. Of course, it's the change in the relative prices that is making it difficult for the manufacturers. Heaped on top of that, of course, is the thing that every OECD economy is experiencing, and that is the hugely increased competition coming largely, but not exclusively, from Asia. So it's not an easy time for manufacturers in making that adjustment.
It's certainly true that it would be easier for all of us if the appreciation of energy prices and the appreciation of metals prices had been rather slower and the appreciation of the Canadian dollar had been rather slower as a consequence.