Loonie hits parity before retreating

The loonie drew even with its U.S. counterpart early Thursday before dropping back later in the morning.

After breaking through the $1 US barrier to $1.0019 before dawn, the loonie gave backits gains to close down 0.12 of a cent to 99.40 cents US.

The loonie has been rising steadily for weeks,even as the Bank of Canada shows signs oftaking a pause in rate hikes because of a cooling economy.

It has been supported by weakness in the U.S. dollar, which has been pressured by speculation that the U.S. government will start injecting more money into the weak economy to give it another boost.

Camilla Sutton, a Scotiabank currency strategist, said the American dollar is "extraordinarily weak."

Rising prices for commodities likemetal, potashand oil which are plentiful in Canada are also helping to stoke the fire under the country's currency. The Reuters-Jefferies CRB index of 19 commoditiesrose more than half a per cent to above 300 points on Thursday. It's the first time the indicator has been that high since Oct. 14, 2008.

'Firmer commodities are also playing a role.' Doug Porter

"The main driver [for the loonie] is underlying weakness in the U.S. dollar [but] firmer commodities are also playing a role," BMO economist Doug Porter said.

The Canadian dollar came within 0.11 of a cent from hitting parity in Wednesday trading before closing at 99.52 cents US. The loonie then rose to match the American dollar in overseas trading during the night.

Since last reaching parity in April, the loonie has approached the psychological barrier several times, only to fall back each time. However, economists say this time could be different, as signals mount that the U.S. economy is going to remain weak for a while.

The most recent appreciation followed the release of minutes from U.S. Federal Reserve officials that suggested the American central bank will further ease conditions through buying treasuries so-called quantitative easing.

That suggests U.S. central bankers are worried about the slow pace of the U.S. recovery and want to provide more cash to help jump-start stronger growth.

That expectation of more stimulus has supercharged equity markets, too. The TSXclosed Wednesday atits highest level since September 2008 and the benchmark Canadian bourse is now within less than 100 points of where it was before Lehman Brothers declared bankruptcy.

A rising loonie will make Canadian exports of everything from auto parts and furniture to newsprint and lumber more expensive to American customers. But it will also cut the costs of imported goods and make it cheaper to travel abroad.