The Canadian dollar could hit the US80¢ mark by yearend, says a report by RBC Financial Group.

Bank economist Jack Homareau said that while the most obvious losers from a rising C$ are Canadian firms that export their goods to the U.S., Canada’s fundamentals, such as its federal budget and trade surpluses, are much stronger than those of the U.S. “ and we feel the Bank of Canada will develop more flexibility in setting monetary policy during the current interest rate hiking cycle relative to the U.S.”

Homareau noted the loonie rallied as much as US1.4¢ this week before settling back due to weakness in the U.S. dollar and comments from Bank of Canada Governor David Dodge that suggested a tightening bias in interest rates.

“An appreciation or depreciation of the Canadian dollar will always produce winners and losers in the economy. A stronger Canadian dollar benefits consumers in terms of lower prices for imported goods ranging from food items to new cars. Business benefits are twofold: machinery and equipment as well as non-energy inputs from the U.S. can be acquired at lower prices.

“A rising Canadian dollar will lower import prices and this will help keep inflation in check in Canada and ultimately produce even narrower interest rate spreads between Canada and the U.S. We expect the Canadian dollar to reach approximately US80¢ by the end of the year. “

BMO Nesbitt Burns Inc. chief economist Sherry Cooper also weighed in on the loonie in a report Friday. She noted the growth gap between the U.S. and Canada has vanished, oil prices remain lofty, and the U.S. current account deficit continues to deepen were all bullish signs for the loonie versus the greenback.

“The Canadian dollar is also back on a roll, fuelled by a tough-sounding Bank of Canada (“stimulus must be reduced”) and uncertainty over how far and how fast the Fed will hike rates,” she said.

“Some notable technical analysts have suggested that the Canadian dollar is about to break above a 30-year trend line.”

Cooper said Dodge has left little uncertainty. “He told us this week that the Bank would raise interest rates further to choke off inflation pressure in a strengthening economy, but added that the pace of rate increases would depend on capacity and inflation trends. The Canadian economy is running at the highest level of manufacturing capacity utilization in a decade and the output gap (the difference between actual and potential economic output) has disappeared. The strong Canadian dollar keeps the lid on import price inflation.”