STEVEN THEOBALD - May 2nd, 2006.

Donald Coxe moved to what some thought the lunatic fringe of forecasters in 2003 when he predicted publicly that the Canadian dollar would reach par with the greenback within five years.

"Not all the disdain was polite," said Coxe, Chicago-based global portfolio strategist for BMO Financial Group.

But he's getting the last laugh.

The hard-charging Canadian dollar is prompting an increasing number of mainstream thinkers to predict parity with the United States.

The dollar has been on a tear for a month, gaining nearly five cents and hitting 26-year highs.

Yesterday, it flirted with the 90-cent mark, coming within 0.02 of a cent in the early afternoon. It ended the day at 89.83 cents (U.S.), up 0.38 of a cent. In early trading Tuesday it reched 90.28 centgs (U.S.)

Coxe, who bases his forecasts on five-year outlooks, remains one step ahead of the pack.

"I changed my forecast three months ago to now say it will trade well through par."

The main story is that investors will continue to punish the U.S. dollar for the huge inflows of foreign capital the economy needs to fund ballooning trade and government budget deficits, Coxe said.

The Chinese and Japanese central banks alone have purchased $1.3 trillion (U.S.) in government Treasury bonds and mortgage-backed securities in the past four years, he added.

"There is no obvious reason why people would want to hold U.S. dollars," Coxe said.

"It also helps that Canada has a fundamentally good story of its own."

National Bank Financial saw the writing on the wall and upgraded its exchange rate forecast yesterday.

Last December it had predicted an average of 86 cents this year, and perhaps parity five years out. It now expects the loonie will reach parity with the U.S. dollar by the fall of 2007.

As Coxe argues, external factors will be the key drivers, said National Bank chief economist Clément Gignac.

"Our long-standing, secular optimism about the Canadian dollar is well known," wrote Gignac in an email to clients.

"Even if profit-taking on the currency could be seen after the nice run-up in April, we believe that the stars will align for a Canadian dollar at par with the U.S. dollar well before our initial target of 2010."

Though global imbalances will cause the greenback to weaken further — foreign investors are sending $2.5 billion (U.S.) a day to the United States — Canada offers a safe haven.

Exporters, which have been raising their productivity through both heavy investments in new machinery and equipment and by trimming payrolls, may be losing sleep at the thought of a dollar at par.

But firms are coping quite well, Gignac said, citing a recent KPMG survey that claims, even with an 85-cent loonie, domestic businesses have the lowest operating costs among the G-7 industrial countries and that the exchange rate would need to hit 98 cents for costs to be as expensive as those in the United States.

Also, pre-tax corporate profits as a share of GDP hit 14.6 per cent in the final three months of 2005, an all-time high.

National Bank expects Canada's trade surplus will remain between 4 and 5 per cent of GDP, helped along by improving relations with the United States.

The biggest risk to the loonie reaching parity is a possible sharp drop in commodity prices or a recession in the United States, started possibly by a severe correction in real estate prices, Gignac said.

Canada's booming real estate market ought to benefit as the surging loonie puts downward pressure on inflation and interest rates.

Was it really 28 years ago?

The dollar was trading above the 90-cent (U.S.) threshold Tuesday, marking its highest level against the American greenback since Jan. 26, 1978.

Some will remember 1978 like it was yesterday. For others, it’s ancient history.

Was 1978 really the year Sony introduced the Walkman, the first personal portable tape player? You’re old, dude, if you remember that one.

If you were a movie-goer, you might have been storming the box office to see John Travolta get slicked up in the hit movie Grease, or watch Superman fly off with Lois Lane in the first incarnation of that blockbuster.

But it was Woody Allen’s iconic film Annie Hall that took the Oscar that year as Best Picture.

On the music scene, the Eagles were thrilling fans with Hotel California, which was named Record of the Year at the Grammy Awards.

Are you having flashbacks now?

For example, does the name Jim Jones still bring a sick feeling to your stomach?

Jones was the cult leader who led his followers to commit mass suicide in November 1978 in Jonestown, Guyana, when 912 supporters drank and died from cyanide-laced punch. Jones died the same day of a bullet wound in his head.

In Ottawa, Pierre Trudeau was serving as the Canadian Prime Minister, while Jimmy Carter was in the Oval Office.

And if you were a Montreal Canadiens fan, you were celebrating the Habs’ Stanley Cup victory over their arch-nemesis the Boston Bruins.

In tennis, Martina Navratilova and Bjorn Borg ruled the grass at Wimbledon.

In baseball, the Yankees were (what else is new?) the elite of baseball, winning the World Series.

In football, the Dallas Cowboys beat the Broncos in the Super Bowl.

On the news front, two popes died in the Vatican that same year. Pope Paul VI died at age 80, and in a shocking turn of events, his successor, Pope John Paul I, died at age 65 after only 34 days in office.

Closer to home, the front page of the Toronto Star on Jan. 27 wasn’t dominated by news of the dollar.

The main story chronicled the paralyzing storm that was called Metro’s meanest winter wallop. Across Ontario, nine people died as a result of the snowstorm that socked us with 120 km/h winds.

To read the news on the newsstand, the Star would have cost you 15 cents.

Other things were also cheaper back then. If you were in the market for a new home, you might have been pulled in by an advertisement in the Star by Heron’s Hill Homes. That builder was offering semi-detached homes and townhouses in Scarborough for $56,900.

--Curtis Rush