The Canadian Press

The Canadian dollar is approaching parity with the American buck for the first time in almost two years, with many predicting it could reach the psychological number at any time.

The loonie was trading up nearly a cent to about 99.8 cents US in early afternoon trading, the highest it has been since July 2008.

“We’re one good number away from seeing the Canadian dollar through parity,” said CIBC chief economist Avery Shenfeld.

If it doesn’t happen earlier, the trigger may be Friday’s employment report for March, particularly if Statistics Canada announces a higher gain than the 28,000 consensus call.

Jobs have been beating expectations in recent months, including February’s surprisingly strong 60,000 pick-up in full-time employment.

Economists say the unseasonably good weather in March points to another strong result, although there is a downside risk that service jobs took a hit after the conclusion of the Olympics Winter Games at the end of February.

Economists also stress that it is difficult to forecast what a currency will do, noting that the loonie has been flirting with parity for several months but has fallen back several times without rising above that level.

As well, after the loonie soared to a record high of US$1.10 in November 2007, no-one predicted it would tumble to as low 76.53 cents a year and a half later.

Still, economists expect the loonie to reach par and stay there longer this time around, suggesting the Canadian currency could remain at such heady heights for two or three years.

Monday’s momentum was supported by world oil prices, which broke the US$86 mark, and strengthening demand from commodities as the global economic recovery gathers steam.

Ironically, even though the loonie is compared the U.S. greenback, Friday’s announcement of 162,000 job gain south of the border in March — the biggest monthly gain since 2007 — is also adding momentum to the loonie, since a U.S. recovery will benefit Canadian exports.

Shenfeld says the fundamentals — Canada’s relatively strong fiscal position, the outlook for commodities and expectations the Bank of Canada will move ahead of the U.S. in raising interest rates — all point to a stronger loonie.

That will be good news for some in Canada. Tourists and cross-border shoppers, for instances, but a strong loonie is regarded as a significant drag to manufacturers, the forestry industry and other exporters.

Avrim Lazar of the Forest Products Association of Canada said a Canadian dollar at parity or near parity will severely restrict his industry’s ability to recover from the recession.

He agreed with some reports that many companies have hedged against a strong loonie, but said the currency will still be a huge blow.

“The government and the bank (Bank of Canada) feeling complacent about a high dollar would be a serious error (because) we export most of our non-government GDP to the U.S.,” Lazar said.

“People are reassured about all the good numbers, but all those good numbers were before the dollar started spiking.”