The Canadian dollar moved above the American dollar for a short time Tuesday morning, reaching US100.12 cents before falling again.
At the closing bell, the loonie sat at 99.88 cents US. That's up 0.16 of a cent compared to Monday's close.
With the Canadian and American dollars dancing around parity, economists say it's only a matter of time before the loonie rises solidly above the U.S. dollar for the first time since July 2008.
Business News Network's Michael Hainsworth says that could come as early as this week.
"One of the big components that will soon push the loonie over the parity edge will be the jobless data we'll get on Friday from Statistics Canada," he told CTV New Channel Tuesday.
"We are expecting to find out that more Canadians found jobs in the last month than initially anticipated. If that happens, that will reinforce to the rest of the world that our economy is well on the road to recovery following the worst recession since the Great Depression."
Hainsworth and others say there are three key reasons why the loonie is where it is today:
Canada currently has the strongest economy in the Western world
the economies of the Eastern world want what we have, i.e. our crude oil
currency traders are wary of investing in the European Union and the U.S.
The U.S. dollar has tumbled in value in recent weeks, as the American economy has shown more signs of continued instability. In Canada, the dollar has surged as the price of crude sits at a 17-month high, with investors worrying about the prospect of increased demand for oil globally.
That has some economists revising their forecasts and predicting the loonie will hover around parity through the summer.
"Currency traders are telling us today to expect the loonie over the rest of the year to trade anywhere from three to five cents on either side of parity," says Hainsworth. "Some are predicting we'll be well above parity for as long as two years."
Scotiabank economists sent a note to clients Monday predicting the dollar will appreciate "well north of parity over the spring and summer months."
RBC currency analyst Matthew Strauss also said he believes the loonie could stay above parity for several months, but also predicted it would dip slightly below the greenback later in the year, when the U.S. starts hiking interest rates.
Nevertheless, Strauss added that Canadians should get used to a strong loonie, noting the dollar could hover within five cents of parity either way perhaps for years.
Does a rising loonie really hurt exporters?
Business News Network's Michael Kane says the rising dollar offers both disadvantages and advantages to Canadian businesses.
"It does, of course, make things difficult for exporters and manufacturers in Canada -- that's a well-documented story," he told Canada AM Tuesday morning.
"But I am told by the Canadian manufacturers and exporters association that a lot of manufacturers are actually using the strength of our dollar to purchase new technology to make their operations more efficient. And that's another story we're quite familiar with in Canada – the fact that productivity is not where it should be in order for us to be competitive with manufacturers in the U.S."
Derek Holt and Karen Cordes at Scotia Capital noted in a letter to clients that Canadian parity doesn't mean what it used to in terms of hurting Canadian business.
"A strong Canadian dollar isn't anywhere nearly as damaging to the economy as often portrayed," they wrote.
They note that the last time the loonie edged past the greenback, in the fall of 2007, Canada's currency was worth about a dime more that the U.S. dollar, and contrary to conventional thinking, it really didn't hurt the Canadian economy.
They also noted that manufacturers and exporters can be hurt when the loonie rises in value rapidly, but in this case, we have had a steady rise into par. Besides, manufacturing accounts for only 13 per cent of the Canadian economy manufacturing, down roughly five percentage points over the past decade.
So when can Canadians expect to see lower prices in stores?
"That depends. It depends on when the retailers bought their goods in the first place," Hainsworth said.
He noted that items on store shelves now were likely purchased in the U.S. when the dollar wasn't worth as much as it is now. But store buyers are making choices now for such things as fashions for the fall season, so it'll likely take until September before the power of the stronger loonie results in lower prices in stores, he predicts.
With files from The Canadian Press
