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Close This Window C$1=US$1 for first time in 31 years Thu Sep 20, 2007 5:28 PM EDT By Louise Egan and Cameron French OTTAWA/TORONTO (Reuters) - The Canadian dollar hit parity with the US dollar for the first time in 31 years on Thursday and is expected to remain strong, delighting Canadians used to being mocked for their "northern peso." The loonie, so called because of the bird engraved on the one-dollar coin, capped a 62 percent rise from 2002 on the back of booming commodity prices and a deepening disenchantment with the greenback. Canada, a major oil producer, is benefiting from record high oil prices and a China-led building boom that has boosted base metal prices. "The huge increase in commodity prices in general have fed the acceleration of the Canadian dollar," said Carlos Leitao, chief economist at Laurentian Bank of Canada. "The fact that economic growth in Asia and in general has accelerated has fed this large appetite for natural resources, particularly energy, which we have a lot of." But the strong currency is seen as a huge threat to Canadian exporters and the parity benchmark adds to pressure on the Conservative government to help out manufacturers. Over 80 percent of Canada's exports are sold to the United States. But Prime Minister Stephen Harper has no plans to talk down the currency, his chief spokeswoman said. "We never comment on the dollar," Sandra Buckler told Reuters. Finance Minister Jim Flaherty was also unavailable, but was scheduled to speak later in the day. The resource boom has coincided with the US dollar's own broad-based decline, following the collapse of the tech bubble in 2001 and the growing US budget and trade deficits, which contrast with Canada's surpluses. The final push to the key level for Canada on Thursday came as the greenback hit a record low against the euro. The momentum for Canada also comes from the narrowing of the spread between US and Canadian interest rates after the US Federal Reserve cut the federal funds rate by 50 basis points this week to 475 percent, bringing it closer to the Bank of Canada's 450 percent key rate. The last time the two currencies were at par was in November 1976, the year Montreal hosted the Summer Olympics and Pierre Trudeau was prime minister. NO STOPPING THE LOONIE Dealers expect the loonie to continue to stay near par or above that, but were divided over just how high it will go and how long the rally will last. "Once parity is achieved, there is nothing stopping the loonie," said Martin Lefebvre, senior economist at Desjardins Securities. But most dealers who spoke to Reuters said the soaring loonie would not be sustained through 2008. In the longer term, the US dollar will have to rebound at some point, said Dustin Reid, senior foreign exchange strategist at ABN AMRO in Chicago. A straw poll of Canadians in central Ottawa showed their mood was as bright as the sunny weather. I have some American friends and they're always saying 'I got a Canadian quarter the other day. So now it's like 'Yeah, yeah, we're even now'," said technical analyst Matthew Mellor. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
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