A fan of US$20 notes. The Canadian dollar is expected to reach par with the American currency by year-end. - File

THE CANADIAN dollar breached 94 United States (U.S.) cents for the first time in 30 years last Friday and analysts are speculating it will be worth as much as the struggling greenback by year's end.

Known as the loonie because of the loon pictured on the one-dollar coin, the Canadian dollar closed at 94.18 cents in New York trading Friday, the highest it has been since July 1977.

It hit an all-time low of 61.79 cents on January 21, 2002.

The latest surge comes after a prediction from CIBC World Markets economists that the Canadian dollar will be worth as much as the U.S. dollar by the end of this year. That last happened in November 1976.

Red-hot commodity

The CIBC report cites an expected rise in Canadian interest rates and stronger-than-expected economic growth, along with hot commodity prices and an 'avalanche' of corporate takeovers that require foreign acquirers to deal in Canadian dollars.

"Between red-hot commodity and energy markets and huge capital inflows associated with an avalanche of (merger and acquisition) deals, the Canadian currency has plenty of octane left to take a concerted run toward parity against the greenback," CIBC World Markets chief economist Jeff Rubin said.

Meanwhile, the U.S. Federal Reserve looks set to cut rates late in the year, reducing the attractiveness of the U.S. dollar, Rubin said.

Sal Guatieri, a Bank of Montreal economist, says the Canadian dollar could surpass the U.S. dollar in the coming years.

Increased purchasing power

"The Canadian dollar is not considered a weakling currency as it was when it was trading at the 60-cent range, so that negative stigma attached to the weak loonie four or five years ago could completely evaporate if we do hit par with the U.S. dollar and that might spur our currency to even greater gains," Guatieri said.

But with an expected dampening in the industrial and manufacturing sector on its way, other analysts predict the Canadian dollar will start to weaken because commodity prices will pull back a bit and Canada's economy may start to struggle because of the strength of the loonie.

Equipped with an increased purchasing power, Canadians for the time being are taking the strong dollar to stores, enjoying shopping sprees on everything from cars to furniture to electronics, both at home and across border.

Their wallets were so open that Statistics Canada reported retail sales increased by 1.9 per cent in March.

Travel in the U.S. and internationally has also increased as Canadians can now afford that trip to Hawaii and a few new outfits to take along.

- AP

On the downside, however, Canada's manufacturing sector is seeing less profitable returns on investment after currency conversion.

Some analysts predict that they could potentially be priced out of global markets.

"Contracts they put in place early in the year that they thought were worth a million dollars are now worth 10 percent less so when they get paid, they're going to be paid a lot less than they contracted for," said Jayson Myers, senior vice president and chief economist, Canadian Manufacturers and Exporters.

- AP