How far will your money go in Canada?

TORONTO -- The Canadian dollar breached 94 U.S. cents for the first time in 30 years on Friday, and analysts are speculating that it will be worth as much as the struggling U.S. greenback by year-end.

Known as the loonie because of the loon pictured on the one-dollar coin, the Canadian dollar closed at 94.22 cents in Friday trading -- the highest it has been since July 1977.

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

For Americans, the strong loonie means that their U.S. dollars will buy less when they visit Canada, while Canadians will find that their dollar goes further in the U.S.

The latest surge comes after CIBC World Markets economists predicted the Canadian dollar will be worth as much as the greenback by the end of the year. That last happened in November 1976.

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 (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 American dollar, Rubin said.

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

"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.

Equipped with increased purchasing power, Canadians are shopping for everything from cars to furniture and electronics, both at home and across the border. Their freer spending boosted retail sales 1.9 percent in March, a Statistics Canada report showed. Travel by Canadians in the U.S. and internationally has also risen.

While this increase in living standards may seem attractive, not everyone is happily throwing back vacation-resort margaritas with news of Canada's rising dollar.

Canada's manufacturing sector used to enjoy that the struggling currency made their goods less expensive in the U.S. and internationally. Now their return on investment is lower because of a less favorable currency conversion, and analysts predict some manufacturers could eventually 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 at the Canadian Manufacturers and Exporters.

While it's too early to measure manufacturing job losses as a result of the rising loonie, there has been a dampening in industrial activity in export-dependent eastern Canada.

"We've developed two economies in Canada," Myers said. "In Western Canada, you've got a booming oil and gas sector and a booming economy because of the dollar, but in Ontario and eastern Canada, it's really suffering because of weak economic activity due to the rising dollar."

Other analysts predict that the Canadian dollar will weaken because commodity prices will pull back and Canada's economy may start to struggle because of the strength of the loonie.

THE CANADIAN LOONIE VS. THE U.S. DOLLAR

94

CENTS

$1

LOONIE'S ALL-TIME LOW

61.79 cents on Jan. 21, 2002

LAST TIME AS EQUALS

November 1976

VS.