A shift by investors in commodity currencies should see the Canadian dollar outperform its close rivals, buoyed by a hawkish interest rate outlook, high oil prices and an improving picture for the U.S economy.
The Bank of Canada may have sounded a less hawkish tone than some had been anticipating when it kept interest rates on hold on Tuesday, but most Canadian primary dealers still see a rate hike coming in the first half of the year, according to a Reuters poll.
Analysts expect the rate outlook to keep the currency on a firm footing against the Australian and New Zealand dollars. All three are growth-linked currencies and are generally sought after when investors grow bullish about the global economy.
"Market pricing for Canada rate hikes is still more aggressive than for Australia or New Zealand," said UBS currency strategist Gareth Berry. "For this reason we expect to find profitable opportunities this year in rotating out of the Aussie and New Zealand dollar longs and into the Canadian dollar."
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