Lloyd, this doesn't have much to do with the government. The reason the Loonie is taking a pounding is the low oil prices. The Canadian dollar is considered a petrobuck these days. (It's not sensible considering that, according to The Economist, crude oil contributes 3% to the Canadian economy... but reality can't interfere with economics sometimes.)
Half right, Currency is almost all speculation by currency traders, so it's all about feeling, not about concrete things. That's why oil prices have such a disproportionate effect, they're in the news almost constantly.
That said, government action does also play a large roll, not necessarily in the way Lloyd described it though. Things the government does that give confidence in the dollar cause it to rise, this can be lowering debt, raising interest rates, changing other monetary policies, etc.
Our previous government saw the currency plummet near the end of their term due to how much they emphasized the link to oil, combined with their back to back deficits for years on end, coupled with lowering of interest rates and the subsequent increase in house prices and personal debt loads.
This government has had very little time to do anything at all, however as of right now, the messages they have sent so far don't signal things that would increase the value of the dollar (talk of deficits (the merit of which doesn't really play on currency values) and no talk of reining in housing prices or personal debt loads, and a BOC governor who is also sending the wrong signals (hints of negative interest rates))
All that leads to the likelihood of a low dollar for quite a while longer. But as I said, it's mostly based on sentiment rather than concrete things, so little things could make big differences in the dollar in the future.
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It really does. Yes it is a petrobuck, but the governments take on taxing that industry will be decreased, thus their spending and taxing ability is decreased. Look at it this way, if they cut spending the same amount that they are loosing in decreased revenue, the currency would remain the same.
It's not quite that simple, when our dollar was on par, the government was running bigger deficits than they were when it tanked. This is one factor, but not by any means the only one. The signals the government sends (most importantly things like GDP ratios and interest rate policies) make a far bigger difference than deficit or debt numbers.