The Canadian dollar rose Monday to its highest level since January against its U.S. counterpart after statistics showed a strong increase in housing starts in February.

The loonie also gained as a lower U.S. dollar gave a boost to commodity prices.

The increase in urban housing starts was most dramatic in Toronto. (Canadian Press)

The loonie closed at 97.31 cents US, up 0.27 of a cent from Friday's close. Earlier in the day, it had reached 97.50, its highest value since Jan. 18, when it hit 97.59 cents US. Crude oil futures finished up 37 cents to $81.87 US a barrel in New York.

Camilla Sutton, a currency strategist with Scotia Capital, predicts the dollar will head higher.

"All the stars have aligned for the Canadian dollar," Sutton told CBC News. "We have a strong fundamental economic base on a relative basis, our fiscal position is very strong, [market] sentiment is in favour of a stronger Canadian dollar, the central bank is getting more hawkish [inclined to raise interest rates] … so everything is lining up for the Canadian dollar.

"It's just a matter of when the market can push itself there. I think it's in the near term that we should see a new high."

Scotiabank is calling for the dollar to reach parity by the summer and rise above that by year's end.

New apartments help boost starts

Canada Mortgage and Housing Corp. reported the seasonally adjusted annual rate of housing starts reached 196,700 units in February, up from 185,400 in January 2010.

That was 7,000 more than many economists had been expecting.

CMHC said the gain in housing starts was concentrated in the multiple-starts segment — such as apartments — particularly in Toronto.

Urban starts increased nine per cent to 179,100 units. Urban multiple starts rose by 19.1 per cent to 89,900, while single urban starts increased by 0.5 per cent to 89,200.

The rate of urban starts, compared with a year earlier, rose 28.6 per cent in Ontario, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and eight per cent in British Columbia.

Quebec's urban starts declined 14.1 per cent.

"While the current homebuilding rebound contributes solidly to the overall economic recovery, some of the current strength is not expected to last beyond the first half of this year," Pascal Gauthier, an economist with TD Bank Financial Group, said in a commentary.

"To put this figure in perspective, recall that the pre-recession peak level was just over 240,000 units. Then starts dropped by 54 per cent … during the recession to a cyclical low near 110,000 units. Fast forward to February 2010, or just 10 months later, however, and starts had roared back by 76 per cent from that low to near 200,000 units."

Demand rises ahead of HST

Gauthier attributed the strength to a drop in the supply of existing housing as potential sellers waited for the economy to improve and demand rose ahead of plans by British Columbia and Ontario to introduce harmonized sales taxes on July 1.

After then, Gauthier expected some of the strength in those markets would wane but the recovery in other regions of the country [in February], he said "is more telling of true underlying strength that has the potential to carry into the second half of the year."

Also on Monday, a study by the Royal Bank suggested more Canadians are very likely to buy a new home in the next two years. Ten per cent of the 2,047 people surveyed for the 17th annual RBC home ownership study said they plan to buy a home by 2012 — up from seven per cent two years ago.

The survey suggested 15 per cent of those in the 18-to-24 bracket are very likely to buy — almost double the level recorded in 2009.

The online poll of 2,047 adult Canadians, conducted by Ipsos Reid between Jan. 8 and 13 had a deemed margin of error of 2.2 percentage points, 19 times out of 20.

With files from The Canadian Press