The Canadian loonie broke through another psychological barrier Tuesday, rising above $1.09 US in after-hours trading and raising alarms that the rapid acceleration is both unsustainable and damaging to the economy.

With crude oil closing in on the increasingly inevitable $100 US a barrel era, and other commodities also showing stubborn strength, the Canadian currency had another day for the record books, adding on to Monday's previous all-time high close to finish regular trading Tuesday in Toronto at 108.52 cents US, up 1.34 cents.

"This is nothing short of incredible," said Douglas Porter, deputy chief economist with BMO Capital Markets. "I'd like to say we're nearing the end of the run, but I can't say that confidently."

In fact, the Canadian currency continued to head skyward in after-hours trading Tuesday, rising another 0.65 cent US to hit 109.17 cents US at about 5:15 p.m. ET — slightly more than an hour after trading officially ends in Toronto. It later slipped back to hover around $1.09 US in evening trading.

The currency has been breaking new ground since Friday when it rose above $1.07 US, the highest it's been since 1950 when the dollar was allowed to trade freely.

The latest surge was credited to an equally impressive run-up in the price of crude oil, up to above $96 US a barrel, and gold prices that surged by over $14 US an ounce, as well as solid returns for other commodities, particularly wheat.

However, there were growing concerns that the loonie's muscle was not only suspected of being at least artificially enhanced, but also likely to exert some pain to the Canadian economy.

Risks to economy increase

In a speech in New York, Bank of Canada senior deputy governor Paul Jenkins cautioned that despite firm commodity prices and strong domestic demand, "the magnitude of the [loonie's] recent appreciation appears to be stronger than historical experience would have suggested."

And given that the loonie's surge is even stronger than the bank anticipated only three weeks ago, he warned that the risk of damage to the Canadian economy has also increased.

"The combined effect of a weaker U.S. outlook and a higher assumed level for the Canadian dollar implies that net exports will exert a significant drag on the Canadian economy," he said.

Scotia Capital economist Karen Cordes said she also expects to see a decline in domestic retail sales as more and more Canadians are lured by low prices south of the border.

"Whatever the reasons or sources of the strength, the dollar has a huge implication for Canada and we're going to start feeling it soon," she said.

Exporters feel more heat

The sky-high loonie has already caused havoc with exporting sectors, particularly manufacturers and the forest industry that depend on selling products into the United States.

Last week, Canadian Auto Workers president Buzz Hargrove again called on Bank of Canada governor David Dodge to match the 75 basis point interest rate cuts in the U.S. as a way of reining in the loonie, which he said was affecting not only car exports, but also the entire auto parts sector.

Cordes also said she believes the bank should begin cutting rates early next year, though she doubted it would. A rate cut would make foreign investments into Canada less attractive, deflating demand for the Canadian currency.

U.S. analyst Dennis Gartman, who was among the first to predict the loonie's ascent past parity as far back as five years ago on the simple premise that Canada "has stuff the world wants," said the Canadian currency is now on such a roll that it may be difficult to reverse quickly.

"The Canadian dollar is like an aircraft carrier and you can't stop that on a dime, it's got a lot of momentum," said the author of the influential Gartman Letter out of Virginia Beach. "It'll stop when one of your major exporters closes shop and says he can't compete anymore."

But Gartman disagreed with critics of the high dollar, saying that in the long run a strong currency is good for Canada because it will force businesses to compete in the world despite the high currency.

Still, he said he is not "long" on the dollar and predicts any rise above $1.10 US will be unsustainable.