The sinking U.S. dollar is primarily responsible for the Canadian dollar soaring to parity with the greenback for the first time in almost 31 years, Finance Minister Jim Flaherty said Thursday.

Finance Minister Jim Flaherty, smiling at a news conference in Ottawa on Thursday, noted that the euro and the Australian dollar have also climbed against the U.S. dollar.
(Fred Chartrand/Canadian Press)

"The real story here is the rather dramatic decline in the U.S. currency in recent days and as a result of that the Canadian dollar is up significantly," Flaherty told reporters in Ottawa.

He noted that the euro and the Australian dollar have also climbed against the U.S. dollar.

The minister cited high commodity prices and strong economic fundamentals as contributing factors in the Canadian dollar's rise.

The loonie briefly reached $1.0003 US on foreign-exchange markets shortly before 11 a.m. ET and spent much of the rest of the day flirting with parity before closing at 99.87 cents US, up 1.37 cents from Wednesday's Bank of Canada close.

Flaherty revealed that he called Bank of Canada Governor David Dodge earlier in the day to discuss the currency's rise, but played down the significance of the call, saying: "We speak regularly."

Flaherty wouldn't disclose the substance of the conversation, but reiterated previous statements that the central bank sets interest rate policy independently, without political interference.

However, he did express concern about the weakening U.S. housing market and a credit crunch, which are partly responsible for the U.S. dollar's decline and could signal an economic slowdown there.

"With respect to the U.S. housing market, this is a significant concern," Flaherty said. "Our forestry industry and many of our manufacturers supply that market in the United States and it's going through a difficult time."

"We are a major exporter of automobiles. Most of the vehicles built in Canada are exported to the United States so we expect less demand there because of the difficulties in the U.S. economy and that will affect the Canadian economy," he said.

Flaherty acknowledged that the sudden rise in the dollar is putting extra pressure on Canadian manufacturers.

"Canadian manufacturers have been remarkably resilient and I'm very proud of them … It's always difficult when the changes are relatively sudden like this recent depreciation of the U.S. dollar," he said.

With files from the Canadian Press