The Canadian dollar is expected to remain at parity with the U.S. greenback through the end of the year, but will slip back next year, an economist at RBC Financial Group said Friday in a new report.

As financial markets begin to expect the U.S. Federal Reserve to lean toward an increase in interest rates next year, the Canadian dollar will start to reverse recent gains, said RBC chief economist Craig Wright.

"This weakening trend will be abetted by moderating commodity prices," said Wright. "We are forecasting that the currency will end 2008 at [93 cents US], which represents a 9.2 per cent depreciation compared to current levels."

RBC's report sees a larger slide than several other forecasts.

BMO Capital Markets and TD Economics both predict the loonie will fall to about 95 cents US by the fourth quarter of 2008, while Scotia Capital sees only a slight easing back to par by the end of next year.

The loonie finished Friday at $1.0276 US, up 0.33 of cent from Thursday's close.

In its report, RBC said the Canadian economy is expected to grow by 2.8 per cent over the final six months of this year, before slowing slightly to 2.5 per cent growth next year.

"Despite recent financial market volatility, Canada should continue to sustain relatively solid economic growth for the rest of 2007 and into 2008," said Wright.

"Strong consumer and business spending will more than offset ongoing export-related weakness resulting from slower U.S. growth and the high Canadian dollar," he said.

The bank sees growth in Newfoundland and Labrador sliding to 0.5 per cent next year from the 7.5 per cent expected for this year. The dramatic falloff will come as the White Rose gas project and Voisey's Bay nickel mine fully work their way into the economy.

Wright said the province's growth rate will pick up at the start of the of the next decade as three projects — the south White Rose extension, South Hibernia and Hebron — begin construction.

In Ontario, growth in 2008 is forecast to come in at 1.8 per cent, down by 0.1 percentage points from this year's expected growth. Ontario faces challenges to its export-oriented manufacturing sector from the rise in the Canadian dollar against its U.S. counterpart.

Growth in Alberta will cool next year, but still remain at the head of the pack with a forecast expansion of 4.5 per cent. Saskatchewan's economy is forecast to increase by 4.3 per cent in 2008.