By Romina Maurino And Gary Norris, The Canadian Press
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TORONTO - For the first time in a generation, Canada's dollar is staring eye to eye with its American counterpart after reaching parity briefly with the world's dominant currency.
Boosted by high commodity prices and a weakening greenback, the loonie rose Thursday to an intraday high of US$1.0008, a level it has not hit since November 1976 - great news for the energy and import sectors and Canadian travellers but another sombre milestone for the country's industrial heartland.
The loonie, which has been gaining on its American counterpart since bottoming out below 62 cents in early 2002, has recently been on a spectacular runup from 95 cents at the start of September and from under 90 cents last spring.
Soaring demand for Canadian commodities, ranging from oil and wheat to coal, potash, nickel and zinc - have helped propel the currency, while a weakening American economy has dragged down the greenback against the loonie, the euro and most of the world's other currencies.
At 10:58 a.m. EDT, the loonie first crossed the threshold to hit $1.0004, then eased back slightly to close at 99.87 cents US, up 1.37 cents from Wednesday.
The last time the dollar was at par with the greenback was Nov. 25, 1976, as oil prices soared three years after a Middle East war, and when Pierre Trudeau was prime minister and Rene Levesque had just become the separatist premier of Quebec.
That high point for the currency signalled the beginning of a long slide as national unity concerns, falling oil prices, recession and mounting worries about Canada's worsening government finances over the next decade or so scared away foreign buyers.
The loonie began to recover a bit after the former Liberal government began tackling the deficit, taking off in recent years because of massive global demand for Canadian resources and the solid growth in the economy, especially in the oil-rich West.
"What the story is really saying is that Canadians are getting richer relative to the U.S. and hence Canadian assets are getting richer compared to the U.S.," said CIBC economist Jeff Rubin.
"It really represents a very dramatic reversal of fortune from what would have happened 10 years ago when our resource economy made us look rust belt compared to the technological dynamo of the U.S. economy."
The currency had advanced 1.38 cents US Tuesday after the U.S. Federal Reserve cut short-term interest rates by half a percentage point, undercutting the attractiveness of the American currency. Even more lift came from crude oil hitting new highs solidly above US$80 a barrel.
"It's been a perfect environment for the Canadian dollar to strengthen," said Craig Alexander, deputy chief economist at TD Economics.
"You're getting a stronger Canadian dollar on positive economic news out of Canada, rising commodity prices, improving interest rates spreads and concerns about the U.S. dollar."
Most forecasters weren't anticipating the loonie to hit parity with the U.S. greenback at all - much less so soon and so quickly.
The No. 1 reason behind the sudden surge, Alexander said, "is that the U.S. Federal Reserve surprised financial markets by cutting interest rates by half a point at their latest FOMC meeting."
"That makes the Canadian dollar look more attractive to international investors because it means interest rates in Canada are less, below those in the United States."
The high dollar may make U.S.-made goods cheaper to buy in Canada and is a boon to Canadians travelling in the United States, especially cross-border shoppers and those looking to book winter vacations to Florida or Arizona. Those trips are suddenly much cheaper than they were a month ago.
But the high loonie will continue to put pressure on domestic manufacturers trying to sell goods south of the border at a discount, some priced out of U.S. markets altogether.
Manufacturers such as lumber exporters, who have little insulation from commodity prices as U.S. housing demand weakens, and automakers will be particularly hard-hit as the rising Canadian dollar makes exports less competitive.
Tourism in Canada could also be affected, as travel here becomes more expensive to Americans - a drop that will likely ripple through the hospitality industry.
Rubin estimates that the manufacturing sector could see as many as 100,000 more jobs shed over the next 12 or 15 months, calling it the "obvious" loser of the rising loonie.
"It is getting crushed, no doubt about it - we lost a quarter million manufacturing jobs," he said.
But, he added, "the pain and suffering in the manufacturing sector is nowhere evident when you look at the broad economic numbers."
While the manufacturing sector has lost 289,000 jobs since late 2002, the economy has created more than one million jobs in resources, construction, services, health care, education and financial industries, leaving the national jobless rate at 30-year lows.
"Even in the province of Ontario, which is after all, the country's manufacturing heartland, the unemployment rate is at a 20-year low... the energy sector is basically taking over our balance of payments."
On the other side, importers will win big as the costs of bringing goods into Canada gets cheaper, as will wholesalers - the economy's "middlemen."
It could also benefit consumers, who will see the purchasing power of their money rise, though that has yet to happen in a significant extent, said Alexander.
"It is showing up in some areas like gasoline prices (and) retail areas like clothing and footwear but, broadly speaking, we haven't seen a significant pass-through yet," he said.
"Canadians that decide to do some cross-border shopping are benefiting, the increasing popularity of the Internet makes it possible for Canadian to buy things from vendors abroad and to that extent they can benefit 100 per cent from the appreciation of the Canadian dollar."
American-dollar weakness was also evident across most currencies Thursday as the greenback slumped versus the euro, the British pound, the yen and Swiss franc.
It dropped to record lows Thursday against the euro, which rose above the US$1.40 level, the highest value for the European currency since its inception in 1999.
The spot gold price, meanwhile, topped US$730 an ounce, trading at US$742.60, up $13.10 on the day.
Some foreign exchange analysts in the U.S. have predicted the Canadian dollar could reach as high as $1.05 US if weakness in the American economy persists.
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Chronology of the Canadian dollar:
Aug. 20, 1957 - C$1 worth US$1.0614
1962 - 1970 - dollar fixed at 92.5 cents US
May 31, 1970 - Trudeau government floats currency
April 25, 1974 - floated currency peaks at US$1.0443
Nov. 15, 1976 - Parti Quebecois elected
End of 1978 - C$1 worth 84 cents US
Feb. 4, 1986 - worth 69.13 cents US
Nov. 4, 1991 - C$1 worth 89.34 cents US
Jan. 21, 2002 - all - time low 61.79 cents US
Sept. 20, 2007 - loonie and greenback at par, first time since 1976
