The Canadian and U.S. dollars will be of equal value on global currency markets early next year. That call comes from Matthew Strauss, a senior currency strategist with RBC Capital Markets. In a research note released Friday, Strauss wrote: “We remain confident that … parity is not an issue of ‘if’ but ‘when.’” Our dollar closed at 95.37 cents U.S. last week.

Strauss pointed to the strength of our recovery – relative to the Americans’ – in the broad economy and housing sector, and of course in commodity prices. Skyrocketing commodity valuations have been fueling the rise of our dollar throughout the year. It’s up almost 16% since the beginning of 2009.

Do you feel 16% richer than you were in January? There are more than a few U.S. investors who wish they’d been holding as much Canadian currency as you are this year. It’s not something many of us spend a lot of time thinking about, but the return we enjoy on our investment portfolio is not just impacted by the performance of the underlying investments we put our money into. The currency those companies do business in matters too.

Let’s say you’re invested in a fund that holds U.S. technology companies. Your return will be based partly on the performance of those companies. It will also be based on the relative value of those U.S. dollar returns. If U.S. dollars drop in value – compared to Canadian dollars – then the value of your return on investment takes a hit. At the end of the day, it’s Canadian dollars you need.

Here’s a more dramatic example. Iceland’s króna has taken a severe beating during the global financial crisis. It lost about 36% of its value relative to our dollar in 2008, and it is down more than 15% this year. Even if you’d found a successful Icelandic company to invest in during that period, your return on that investment would be valued in a currency that has plummeted in value relative to the Canadian dollar.

Does this mean you shouldn’t invest outside Canada? Not at all. The diversification benefits of a global investment strategy are well documented. It does however highlight the added risk inherent in an international investment portfolio.

The good news is that currency risk is manageable. Talk to your advisor about currency hedging strategies. They allow you to lock-in the current rate for a period of time, which removes the risk of fluctuating valuations.

Currency risk is a fundamental of good portfolio design, and there’s a good chance your advisor has already taken care of this for you. It doesn’t hurt to ask though.