As the Canadian dollar soars toward parity with the U.S. greenback, Canadian retailers are bracing for a possible consumer backlash against the widening price gap between Canadian and U.S. goods.

Prime Minister Stephen Harper echoed the Bank of Canada's concerns a rising dollar "poses a risk" to Canada's economic recovery.

And Canadian exporters, who ship more than three-quarters of their goods south of the border, are worried less competitive prices will mean lost sales and jobs.

Cross-border travellers will welcome the news. Canadians took 18.9 million overnight trips to the U.S. in 2008, spending $12 billion. An estimated 7,000 Canadian "snowbirds" who spend up to half the year there will find their dollars go further.

The Canadian dollar closed up nearly three-quarters of a cent at 96.48 cents U.S. Tuesday on rising prices for oil and other commodities, a strong employment report for September, and worries about the U.S. deficit.

The loonie's rapid rise in recent days, up 5 per cent in the past week and 26 per cent since early March, has forecasters predicting it could reach parity sooner than expected.

"We could easily reach parity by the end of the week," said John Curran, a Toronto-based senior vice-president at Canadian Forex Ltd., an online foreign-exchange dealer.

Derek Holt, Scotia Capital's vice-president of economics, said it "could happen (by the) middle of next week."

While that's good news for consumers if it helps drive down retail prices, it can be bad for Canada's manufacturers and exporters.

For every one per cent rise in the value of the dollar, Canada's economy can lose up to $2 billion in exports and 25,000 jobs, according to the Canadian Manufacturers and Exporters. "We're telling members coming out of the recession, business as usual is no longer an option. You'd better be willing and capable of competing at par going forward," said spokesman Jeff Brownlee.

Canadian retailers say they're watching closely for any signs of a consumer revolt like the one that took place two years ago when the loonie soared above the greenback. At the time, angry consumers demanded Canadian stores lower their prices to more closely match those in the U.S., especially on books and magazines, which published both prices on the covers.

"Retailers in Canada understand they are serving customers without borders," said Mark Beazley, spokesman for the Retail Council of Canada. "With fierce competition in Canada, across the border and online, retailers know that they will have to work harder than ever to remain competitive as the loonie rises against the U.S. dollar."

Consumers are unlikely to see price cuts any time soon, as cost savings can take three to nine months to flow through to the retail level, he said. "That being said, Canadian retailers are sensitive to the needs of their customers and will ultimately make pricing changes based on their demands."

Goods in Canadian stores are now 13 per cent more expensive on average than in the U.S., up from 7 per cent last summer, says Doug Porter, deputy chief economist with BMO Capital Markets.

"This big run-up is coming at a very sensitive time as we head into the key shopping season of the year. Unfortunately, this is going to put renewed pressure on domestic retailers," Porter said.

"We could start to see cross-border shopping start to pick up again. It had almost whittled away to nothing by last summer, partly because of the hassles of crossing the border, needing a passport and so on."

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So far, there are few signs cross-border shopping is picking up.

Despite reports of long lineups at some Canada-U.S. bridges over the Thanksgiving weekend, traffic remained down by about 10 per cent compared to last year, bridge operators at Niagara and Windsor said Tuesday. That's roughly where it has been all year.

But consumers can comparison shop on the Internet, Porter noted.

In Vancouver Tuesday, Harper said the Bank of Canada governor has expressed concern about the rapidly rising dollar and he deferred to his judgment on the effects of the loonie's rise.

"We note that Canada's economy is relatively stronger than virtually any of the G7 economies and stronger than most in the world. Obviously, some of these factors will have something to do with the rise of the Canadian dollar," he said. "The value of the Canadian dollar is a risk to recovery. It's not a risk to choking off the recovery but if it rises too rapidly it does have an effect."





With files from Petti Fong