OTTAWA - A new paper on the impact the strong dollar has had on Canada's economy puts into sharp focus why Ontario Premier Dalton McGuinty is not the oilsands' best friend.

The analysis by Bank of Montreal economist Douglas Porter traces the 10-year climb of the loonie from about 62 cents in 2002 to its current level above par with the U.S. currency.

Porter says a main trigger for the loonie's surge has been wealth flooding into Canada from exports of commodities such as oil.

And that, he says, triggered a 22 per cent contraction in the manufacturing sector, with many of 500,000 lost jobs being shed in Ontario.

Porter notes that while the resource sector is creating jobs, it can't come close to compensating for the job losses in the much larger manufacturing sector.

The Canadian Manufacturers and Exporters also blames the high dollar for continuing difficulties in the sector, but it sees weak U.S. demand as being even more significant.

Canada is also facing increased competition from manufacturing powerhouses like China, India, Korea and Brazil.