The loonie is undervalued compared to its American counterpart but should be on its way up, according to two prominent Canadian economists.
CIBC economist Avery Shenfeld said the Canadian dollar should average at two cents above the US dollar in 2009.
And in a recent report for analysis firm Global Insight, Dale Orr said the Canadian dollar should currently be well above parity with the U.S. dollar due to continued high oil prices, which the dollar's success has traditionally mirrored.
The dollar closely followed oil prices when they rose from US$34 per barrel to US$95 between 2003 and 2007. But, it has remained relatively stagnant in the commodity's unprecedented climb to US$140.
Now that it seems as though oil prices won't be dropping anytime soon, the markets are likely to see the loonie catch up, Orr wrote.
Shenfeld says the dollar will also gain ground if the Bank of Canada starts raising interest rates next year.
"The Bank of Canada is likely to raise interest rates in 2009 but it needs to see more growth prospects form the U.S. economy before being comfortable doing so," he told CTV.ca on Tuesday.
He said the dollar normally follows the price of commodities in general, not just oil, a sector in which Canada is doing well.
"The rest of the world has to buy more Canadian dollars for (the commodities) that Canada exports," he said. "That would normally have bid up the value of the dollar."
Shenfeld predicts the dollar will average about two cents above parity for much of next year.
A high dollar could have further negative impacts on the Canadian manufacturing sector as importing Canadian goods becomes more expensive for other countries to import, he said.
With files from The Canadian Press
