TORONTO - The loonie closed above parity with the U.S. dollar Wednesday for the first time since May 2008, finishing up more than a quarter cent at 100.08 cents US.
The loonie has been supported by the relative strength of the Canadian economy, rising commodity prices and confidence that Canada has not taken on more debt than it can handle -- worries that persist for the United States and many European countries.
Those worries have driven down the value of the greenback and euro and made the loonie look more attractive to global investors.
"This time, the strength of the Canadian dollar is largely reflecting strong fundamentals in terms of Canada, whereas last time it was largely a U.S. dollar weakness story," said Craig Wright, chief economist at RBC Capital Markets.
The emerging contrast between the relatively strong Canadian economy and its weaker counterpart south of the border -- and the expectation that the Bank of Canada will raise its key lending rate before the U.S. Federal Reserve -- "lit the fire under the Canadian dollar" throughout March, said Wright's colleague, assistant chief economist Paul Ferley.
Then, on Tuesday, a report from Statistics Canada found that Canada's global trade surplus in February jumped to its highest level since late 2008, providing the catalyst that nudged the loonie over parity.
"This was despite a fairly high Canadian dollar, which maybe suggested to financial markets that the Canadian economy can cope with the stronger value of the Canadian dollar, and I think that may have provided a further boost overnight," Ferley said.
Another factor supporting the loonie is growing foreign interest in Canadian assets, Ferley added. On Monday, Chinese energy giant Sinopec said it plans to buy a stake in Syncrude Canada, the world's largest oilsands venture, for US$4.65 billion.
And China is expected to report strong and rapid first-quarter economic growth -- possibly as high as 12 per cent -- on Thursday, providing additional support to strengthening commodity prices.
Economists don't expect the loonie to rise to the heights it reached around US$1.10 back in November 2007, but figure it will waver around parity for a time.
RBC expects the dollar to finish the April-to-June period around US$1.02 but then sees it falling back down to about 97 cents US as interest rates begin to rise in the U.S.
A high loonie is a boon to cross-border shoppers but a curse for many manufacturers and exporters as the price for their goods becomes less attractive to international buyers, especially in the U.S., Canada's biggest market.
