Loonie hits one-year high, likely return to parity

The Canadian dollar rose to a one-year high Thursday even as the Bank of Canada warned once again that a strong loonie will undermine economic growth.

OTTAWA — The Canadian dollar rose to a one-year high Thursday even as the Bank of Canada warned once again that a strong loonie will undermine economic growth.

But with the world recovery from the recession gaining steam and supporting commodities that Canada has in abundance, the loonie appears to be headed for parity, and sooner than expected, economists say.

Douglas Porter of BMO Capital Markets said his bank’s official forecast is for the loonie to reach parity with the U.S. dollar on a sustained basis by middle of next year, but he conceded it could be sooner.

“Once markets focus on a target, they sometimes act like a dog with a bone,” Porter said.

The loonie has been gathering momentum for more than a week and had another strong day Thursday, gaining 0.91 cents to close at 95.04 U.S., the best showing since Sept. 29, 2008. It hit an intraday high of 95.18.

CIBC currency analyst Shane Enright said the mood of markets is similar to the updraft in the first half of 2007 that saw the loonie soar to US$1.10.

The Bank of Canada has been trying to talk the loonie down since at least June, and was at it again Thursday with senior deputy governor Paul Jenkins warning about the loonie’s affect on the economy in a speech in Vancouver.

“All else being equal, a persistently strong Canadian dollar would also reduce real growth,” he said.

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