"You've got the potential for lumber to create another bullish situation for the Canadian dollar," David Watt, senior currency strategist in Toronto at RBC, Canada's biggest lender, said Tuesday in an interview. "You start balancing things out, and parity becomes a relatively easy call for the Canadian dollar out the next few years."

Crude oil, Canada's biggest export, gets the lion's share of attention in discussions about the Canadian currency, Mr. Watt said. Even so, lumber, which is often overlooked, "could be the oil of the next decade," he wrote in a Nov. 20 note. Lumber accounts for 14% of the Bank of Canada's Commodity Price Index, the largest single component after crude at 21%.

The Canadian currency last traded on a one-for-one basis with the U.S. dollar in July 2008, when oil reached a record $147.27 a barrel. The loonie traded at C$1.0456 per U.S. dollar Wednesday in Toronto, near a six-week high.

Shanghai, China's most populous city with more than 20 million people, adopted a new wood-frame building code in September that is "a major step forward in the growing demand for Canadian wood products in China," according to a Nov. 9 statement on Natural Resources Canada's Web site. Prices of lumber futures for January delivery jumped 16% since the statement was issued.

China, the world's fastest-growing major economy, plans to invest 900 billion yuan (US$132-billion) in affordable housing, the state-run Xinhua News Agency reported on Nov. 12. Shanghai will increase the supply of land for property development and speed up construction of housing for low-income families, Mayor Han Zheng said in an Aug. 5 interview.

The probability that the Canadian currency will trade at C$1 per U.S. dollar in 12 months is 78%, according to implied volatility from options trading monitored by Bloomberg. RBC predicts the currency will strengthen to C$1.01 by the middle of next year. The median forecast of 38 economists in a Bloomberg News survey is for the loonie to appreciate to C$1.04 in that period.

Lumber futures for January delivery rose US$10, the most allowed on the Chicago Mercantile Exchange, to US$246.20 per 1,000 board feet on Nov. 30, the highest closing price since August 2008, before dropping 2.1% Tuesday.

Lumber, an industry that has been "under the cudgel" because of the U.S. housing crisis, may rival crude oil and base metals as one of the primary drivers of the Canadian dollar, Watt said.

"Am I going to be tracking lumber prices more closely going forward? Certainly," said Mr. Watt. "We've already got all the indicators of some base metal prices and oil prices. Now you have to start throwing lumber in there too. It's no longer a commodity that's on Page 5 or 6 of your commodity indices."

Bloomberg.com