By Mary Childs and Chris Fournier

(Bloomberg) Canada’s dollar was worth more than the U.S. currency for the first time since July 2008 on the back of the rising price of crude oil and the prospect of higher interest rates.

Canada’s dollar, dubbed the loonie for the aquatic bird on the C$1 coin, last traded through parity with the greenback on July 22, 2008, 11 days after crude, the country’s biggest export, reached a record $147.27 a barrel. Oil rose to a 17- month high today.

“As we trade around it and move through it, the parity level becomes much less of a target and more of an accepted norm,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia, Canada’s third-largest bank. “Everything continues to be in line for Canadian dollar strength.”

The currency gained as much as 0.3 percent to C$99.88 per U.S. cents, and traded at C$1.0012 at 4:12 p.m. in Toronto, compared with from C$1.0022 yesterday. One Canadian dollar buys 99.88 U.S. cents.

The loonie traded on a one-for-one basis with the U.S. currency in September 2007 for the first time in three decades, capping a five-year run on the back of booming demand for the nation’s commodities.

Canada, the largest trading partner of the U.S., has benefited from rising demand for copper, gold, wheat and oil from the U.S. and emerging economies such as India and China. The country is the world’s largest producer of uranium, the second-biggest exporter of natural gas, and sits on the largest pool of oil reserves outside the Middle East. Canada is also the world’s second-largest exporter of wheat.

Cheaper Imports

The strengthening Canadian currency makes it cheaper to import materials priced in U.S. dollars, according to Duncan Reith, senior vice president of merchandising in Toronto at Canadian Tire Retail, the nation’s largest auto parts and sporting goods retailer. “It’s helping us provide better value to our customers because we buy a lot of our product in U.S. dollars from the Pacific Rim,” Reith said.

The advancing Canadian dollar also risks penalizing manufacturers and service companies such as Fredericton, New Brunswick-based ADI Systems Inc., a provider of technology used in industrial water treatment systems. Privately held ADI, which has about 25 employees, generates 90 percent of sales in U.S. dollars, said President Graham Brown.

“We have to accept we’re making less money when converting our U.S.-dollar profit back into Canadian dollars,” Brown said in a phone interview. “In a very competitive market, we’re really not in a position to bump up our prices to compensate.”

Interest Rate Expectations

The Standard & Poor’s/TSX Composite Index slipped 29.64 points, or 0.2 percent, to 12,156.71, led by energy companies and railroads.

Crude oil for May delivery rose 22 cents, or 0.3 percent, to $86.84 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 8, 2008. Prices are up 9.4 percent this year.

The central bank will boost its target overnight rate by 2 percentage points to 2.25 percent by the middle of next year, according to the weighted average of eight economists in a Bloomberg News survey of economists.

Matthew Strauss, senior currency strategist in Toronto at Royal Bank of Canada, expects the central bank to raise rates by the middle of this year.

“Once they start hiking, we think it’s going to be a pretty aggressive process with probably around 100 basis points worth of hikes in the second half of this year, followed by an even more aggressive campaign into 2011” Strauss said in a Bloomberg Television interview.

Deficit Projection

The six-month overnight index swap rate, a measure of the average overnight rate expected by traders during that time, rose to 0.5250 percent, the highest intraday level in more than a year. The central bank next meets on April 20 to determine monetary policy.

Canadian employers added 25,000 jobs in February, the third straight monthly gain, according to the median of 21 forecasts in a Bloomberg survey. Statistics Canada releases the report on April 9 at 7 a.m. in Ottawa.

Canada is on course to be the first Group of Seven nation to erase its budget gap after the global financial crisis. Finance Minister Jim Flaherty presented on March 4 a budget that forecasts the budget deficit narrowing to C$1.8 billion in 2014 from a record C$53.8 billion last year.

“It’s a perfect storm for the Canadian dollar,” Jonathan Gencher, director of foreign exchange sales at Bank of Montreal in Toronto. “Canadian rates are higher and Canada will be moving before the Fed. Oil is higher. The fundamentals suggest we’ll hang around here for a while.”