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Originally published September 20, 2007 at 12:00 AM | Page modified September 20, 2007 at 6:49 PM

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Canada's "loonie" reaches parity with U.S. dollar

The Canadian dollar reached parity with the U.S. dollar today for the first time since November 1976. Known as the loonie because of the...

The Associated Press

TORONTO — The Canadian dollar reached parity with the U.S. dollar today for the first time since November 1976.

Known as the loonie because of the bird pictured on the one-dollar coin, the Canadian dollar has been gaining ground on its American counterpart since hitting an all-time low of 61.79 U.S. cents on Jan. 21, 2002.

The high Canadian dollar will increase the number of cross-border shopping trips as Canadian consumers come to the U.S. to buy clothes, shoes and electronic gear. Many goods in Canada haven't been reduced yet to reflect the rising Canadian dollar.

"It's going to take some time before it trickles down to us," said Linda An, who calls herself a shopaholic. "Shopping, especially for big ticket items is great now in the U.S."

This week the loonie rose sharply against its U.S. counterpart after the Federal Reserve announced a dramatic half-point cut in its benchmark interest rates. The Bank of Canada, meanwhile, has kept its equivalent rates stable.

As a result, the spread between U.S. and Canadian interest rates widened, making Canada a more attractive place for German, Japanese, American and other foreign investors to put their money.

The soaring loonie also reflects the strong fundamentals of the Canadian economy, which has benefited from record world crude-oil prices and strong demand for metals, coal, chemicals and grain.

At the same time, the United States has been squeezed by a collapse of a big chunk of its housing market and a worsening credit crunch.

"Canadians are getting a lot richer relative to Americans. The parity exchange rate is just one example of that," said Jeff Rubin, Chief Economist and Strategist at CIBC World Markets.

"It really reflects the rise of the resource economy in Canada and the rise of western Canada and the decline of the manufacturing sector and the manufacturing heartland of Canada in Ontario," Rubin said.

The western Canadian province of Alberta is home to vast reserves of oil sands, a tar-like bitumen that is extracted using mining techniques. Industry officials estimate the oil sands will yield as much as 175 billion barrels of oil, making Canada second only to Saudi Arabia in crude-oil reserves.

"The Canadian economy that once use to be the sleepy little resource backwater of the North American economy, is certainly turning the tables on its big brother in a hurry," Rubin said.

The high dollar will hurt Canadian manufacturers who sell goods in the U.S. Canadian Auto Workers economist Jim Stanford warned that the sector, largely based in Ontario, will lose hundreds of thousands more jobs if the dollar remains at current levels.

Copyright © 2007 The Seattle Times Company

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