The currency should be around C$1.2000 to the US dollar, or 83.33 US cents, in one year's time, according to the median estimate of 42 analysts polled in Europe and North America between Oct. 3 and 5.
The Canadian dollar was the world's strongest-performing major currency in September, benefiting from increased interest in the country's growing energy sector as the price of oil was boosted by supply fears in the wake of hurricane damage to the US oil industry on the Gulf of Mexico.
After going as high as C$1.1588 to the greenback, or 86.30 US cents last week, and also touching multiyear peaks against the euro, yen, British pound, and Swiss franc, the Canadian dollar has pulled back, and was around C$1.1817, or 84.62 US cents on Oct. 5.
Analysts' estimates have it rising over the next month to C$1.17, or 85.47 US cents, before resuming its retreat.
"The unwinding of speculative long crude/gas positions as a result of supplies being restored in the southern US and the release of more oil from (US reserves) could provide some headwinds for the Canadian dollar and trigger a bout of profit-taking," said Kenneth Broux, a financial market economist at Lloyds TSB.
Broux said losses would be limited by expectations that the Bank of Canada will continue to raise interest rates over the next year.
The central bank raised its key overnight rate by one-quarter percentage point to 2.75% last month, and at least one more increase is expected before year-end as the bank is seen pushing the rate higher to stave off inflation.
But some say the bank could be forced to cut short the tightening campaign by worries that the surging currency might undercut exports of manufactured goods. Similar circumstances prompted the bank to step to the sidelines one year ago.
"The strength of (the currency) will leave the Bank of Canada inclined to tightening less that it otherwise would, which eventually could slow further appreciation of the Canadian dollar," said Niels Christensen at Societe Generale in Paris.
In three months, the currency is seen at C$1.18 to the US dollar, or 84.75 US cents. In six months it is expected to be around C$1.19, or 84.03 US cents.
However, not all analysts agree the currency will retreat, with the most bullish estimates predicting it will edge closer to parity with the US dollar, hitting C$1.06, or 94.34 US cents, in one year's time.
Many believe that as long as energy prices stay at their lofty levels, there will be few reasons to sell Canadian dollars.
"Canada already sports twin surpluses in its current and fiscal accounts, which are the envy of most countries, not the least of which is its southern neighbor," said Michael Woolfolk, senior currency strategist at Bank of New York.
"Add to this the Canadian economy's dependence upon commodity prices and US growth, and you have a winning combination from a currency perspective." (Reuters)
