TORONTO: Canada's currency will strengthen slightly and trade above equal value with the US dollar over the coming year, buoyed by the most hawkish central bank in the Group of Seven rich countries, foreign-exchange strategists polled by Reuters say.
The poll, released on Friday, sees the Canadian currency trading at C$0.99 to the greenback, or $1.0101, one month from now.
It will be at C$0.98, or $1.0204, in three months, and stay at that level six and 12 months out, according to the median forecast of the 52 global foreign exchange strategists surveyed.
The currency traded at C$0.9970 to the US dollar, or $1.0030, on Friday.
Strategists said the outlook for the Canadian dollar is supported by the US Federal Reserve's pledge to pump $40 billion into the US economy each month until it sees a sustained upturn in the weak jobs market. The pledge marks the Fed's third round of quantitative easing.
"The overall view is that monetary policy plays an important role, and with the Fed still undergoing quantitative easing ... it's still a US-dollar negative story," said Camilla Sutton, chief currency strategist at Scotiabank.
"Juxtapose it against a currency like Canada's, which has a central bank that is relatively hawkish, and whose fundamentals aren't shining, (but) are still, on a relative basis, reasonable."
The poll's forecasts are similar to those in a poll published on Oct. 3, in which the Canadian dollar was seen trading at C$0.98 in one, three, six and 12 months.
October's survey was the first since September 2011 to predict that the Canadian dollar will trade firmer than a one-for-one level with the US dollar across all horizons.
The Bank of Canada has toned down its rate-hiking rhetoric recently, but analysts are fairly certain that the next move it makes on rates will still be up.
With bank Governor Mark Carney saying rate increases are less imminent, most of Canada's primary dealers now expect the Bank of Canada to hold interest rates steady until late next year or 2014.
Sutton said the lack of a longer-term fiscal plan in the United States is also US dollar negative.
In the near term, traders are focused on the looming US "fiscal cliff" of automatic spending cuts and tax hikes set to occur on Jan. 1 if Congress fails to act.
This will be a critical issue facing the next US president after the election, with analysts warning of another recession if Congress does not pull back from the brink.
Analysts bullish on the Canadian dollar also predict that a stabilizing economy in China will support elevated commodity prices, which will boost Canada's resource-linked currency.
CANADIAN DOLLAR OVERSTRETCHED?
Still, not all forecasters were so positive. Many question whether the Bank of Canada can follow through on its hawkish stance in 2013 if a stronger currency squeezes the country's exporters.
The resilient currency is making it hard for exporters to compete, and Canada recorded five straight trade deficits from April to August.
"From our point of view CAD has looked a little bit overvalued relative to fundamentals here," said Shaun Osborne, chief currency strategist at TD Securities, which sees the Canadian dollar weakening back below equal value with the US dollar over the next six months.
"We've seen a fairly impressive string of current account deficits for the Canadian dollar and terms of trade have not been particularly supportive of the currency from a bigger picture point of view."
Osborne also pointed out the heavy net long positions in the Canadian dollar among currency speculators, a trend that has begun to ease modestly but remains near historical extremes.
Some analysts have warned the long positions increase the risk of a sudden reversal if traders move en masse to take profits.
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