Loonie pushing parity, but a double-double's still cheaper in U.S.

OTTAWA — The loonie might be pushing parity with the U.S. dollar, but if you're looking for the cheapest double-double, you're still better off south of the border.

At the Tim Hortons on Victoria Avenue in Niagara Falls, Ont., a large coffee will set you back $1.52 before tax. But at the Tim Hortons on Pine Avenue in Niagara Falls, N.Y. — just an 11-minute drive across the Rainbow Bridge — a medium coffee (equivalent in size to a Canadian large) costs only $1.34 U.S..

The loonie continued its surge against the greenback Wednesday, after strong wholesale trade numbers underscored the strength of the Canadian economy and the U.S. central bank said it would keep interests near zero for the foreseeable future. A rise in crude oil prices also lifted the loonie. It rose as high as 99.31 cents U.S. in trading before easing to close at 98.98, up .36 for the day.

The dollar has risen almost five per cent over the past two and a half weeks as various economic indicators — housing sales and a recovery in employment among them — show the Canadian economy quickly recovering from recession. It has gained almost 30 per cent over the past year against the U.S. dollar.

The latest data on the economy, released Wednesday by Statistics Canada, showed wholesale sales in Canada surging three per cent in January to $44.4 billion, the biggest increase in three years, with autos leading gains in every major category.

On Tuesday, the federal agency released similarly strong data showing manufacturing sales rose for the fifth straight month in January, while productivity rose the most in 12 years in the most recent quarter.

Despite the loonie's rise, Canadian consumers shouldn't expect prices on either side of the border to magically even out any time soon. A variety of factors keep prices of certain goods higher in Canada, including the volume discounts that many big U.S. retailers enjoy and higher labour costs and taxes in Canada, said Mark Beazley, a spokesman for the Retail Council of Canada.

"It also needs to be understood that the adjustment is slowed by the fact that retailers have a lot of fixed costs (payroll, property rental costs), and those costs are in Canadian dollars. They don't come down just because the Canadian dollar has gone up," Beazley said in an e-mail.

The loonie last hit parity in July 2008, before crashing back to earth as commodity prices collapsed with the global financial crisis. This time, however, some economists say the loonie could be here to stay.

"It seems fair to say that the Canadian dollar is perhaps fairly valued at its current level," said Millan Mulraine, senior Canadian macro strategist at TD Securities. "We think over time it will probably be around this range, or just below it."

Economists point to a number of factors that could fuel the loonie's continued rise through the summer. It is widely expected that the Bank of Canada will raise interest rates before the U.S. Federal Reserve, thus making the loonie more attractive to investors. The ongoing recovery in global demand for commodities and the relative fiscal health of Canada's finances should also give the dollar a boost, CIBC World Markets analysts noted in a recent report.

A strong loonie tends to be hard on Canadian exporters, making their products more expensive in the U.S., their biggest market. But Industry Minister Tony Clement said Wednesday that Canadian companies are adjusting to the reality of a higher dollar by improving their productivity.

"What we're seeing now with the higher dollar . . . is an increase in labour factor productivity in our country, the fact that companies are adjusting to a higher dollar and are looking at other means to increase their productivity and their competitive edge," the minister said after a meeting of the Conservative caucus.

"I think the new normal is that you don't just rely on a low Canadian dollar for your productivity edge," Clement said, following similar remarks Tuesday from Finance Minister Jim Flaherty.

With files from John Morrissy