OTTAWA — Canada's dollar continued to inch toward parity Thursday, but this time the strength is all relative.

The currency has gained nearly five cents in the month since it traded as low as 93.65 cents US on July 5, closing Thursday at 98.37 cents US.

It was the highest close for the dollar in about three months.

And analysts say it's possible to envision parity in short order if the jobs data being released Friday in both countries comes out right -- stronger than expected in Canada and on target or slightly weaker than expected in the U.S.

But Royal Bank currency strategist David Watt notes this is all due to the slumping U.S. dollar, rather than a resurgent loonie. In fact, he says, Canada's currency has been anything but golden of late when compared to other major currencies.

"Since mid-June, we've been the worst performing currency overall, apart from the U.S. dollar, in the world," he notes.

"Can we get to parity? Sure, but we're backing into it. We're not steaming toward it like we were in past periods."

Watt says the loonie has lost about five to seven per cent in value against the euro and the currencies of Sweden, Britain, Switzerland, Japan, Australia and New Zealand in the same period in which it has gained against the U.S.

The Canadian dollar is being dragged down because the market view is that Canada's economy will be sideswiped if the U.S. slumps or falls into a double-dip recession, analysts said.

Finance Minister Jim Flaherty agrees the loonie's recent gains -- against the greenback, at least -- reflect the relative strengths of the two economies.

"The fundamental strengths of the Canadian economy have some effect on interest in the Canadian dollar vis-a-vis the U.S. dollar and we all know the U.S. economy continues to have challenges with respect to consumer confidence and the creation of jobs," he said.

Flaherty said he would be worried about "a rapid fluctuation" of the currency because it would disrupt business planning, but added the loonie has not reached alarming levels.

Recent growth indicators show Canada has outpaced its larger neighbour in rebounding from the recession, and while Canada has recouped almost all the jobs lost during the recession, the U.S. remains about eight million shy of its pre-slump levels.

The last time the loonie hit parity was in April, but Canadians likely better recall the fall of 2007, when the dollar soared all the way to US$1.10 and stayed around parity for almost a year, before it was undone by the recession.

The conventional view is that a strong dollar is a net negative for Canada because it prices Canadian exports out of foreign markets, and it is true that manufacturers and the forestry industry benefit from a weak currency.

There is more to the story, however.

Economist Sal Guatieri of BMO Capital Markets says there is a case to be made for a strong dollar, since it increases the purchasing power of Canadians, restrains inflation and attracts investors to a country that is obviously doing well.

"You always want a higher currency as opposed to a lower currency because in effect the nation is becoming richer," he explains. "You just don't want too strong a currency and get ahead of fundamentals, because that means the country will generate a growing trade deficit, which will slow the economy."

He estimates the fundamental value of the loonie given the current levels of commodity prices to be in the low 90-cent level, a view shared by Export Development Canada economist Peter Hall.

In a new analysis, currency strategists at Scotiabank say there are plenty of reasons to be bullish on the loonie for the long term.

The global recovery is increasing demand and prices of commodities that Canada exports to the world, particularly oil. As well, Canada has one of the most fiscally sound economies, with a relatively small government deficit and accumulated debt.

Adding further boost is the prospect that the Bank of Canada will continue to raise interest rates, even if moderately, while the U.S. central bank remains on hold.

"On the external front, international capital flows into Canada have been highly robust ... as Canada's constructive fiscal profile continues to underscore Canadian dollar strength," the Scotiabank strategists write.

What could undo such an outlook, says Watt, is if the U.S. economy gets much worse. That would likely set off a flight to safety in currency markets as occurred during the 2008-2009 recession.