For investing with one present value dollar starting from 1970, does it mean we initially invest $1 dollar in 1970 currency value or initially invest $1 in 2016 value (aka 1/(1.02^36) in 1970 value)?

You would be starting with $1 nominal investment in 1970. Many people use $100,000 but that makes calculating CAGR's from terminal values unnecessarily complicated. For example, if a strategy grows $1 to $100 in 48 years (1970-2017), its CAGR is 10.07%. Of course, if you were doing a trading-cost analysis, which we wish more people would do, you would have to start with some more reasonable investment size.