Canadian dollar to stick near par with greenback

TORONTO (Reuters) - Canada's dollar, whose strong rally has caused concern for the country's central bank, is now expected to stay in a tight range near par with the greenback for the next year, a monthly Reuters poll showed on Wednesday.

Strong prices for Canadian export commodities, notably oil and gold, and further signs of a global economic recovery, were cited as key supports that could send the currency above the U.S. dollar for the first time since mid-2008.

If that scenario plays out it could unsettle the Bank of Canada, which has issued warnings about the currency's strength threatening the domestic economy's recovery. Just last week the bank reiterated that it has a suite of tools at its disposal to temper the currency's strength.

But forecasts varied widely, reflecting a still-uncertain economic outlook, with 19 calling for the currency to reach parity with the U.S. dollar in the next 12 months and another 12 calling for it to fall back below 87 U.S. cents over the next year.

At 12:00 noon (1700 GMT) on Wednesday, the currency was at C$1.0650 to the U.S. dollar, or 93.90 U.S. cents, which was 23 percent above the four-year low it tumbled to in March.

In one month, the Canadian dollar is expected to be worth C$1.070 to the U.S. dollar, or 93.46 U.S. cents, according to the median estimate of 55 strategists polled by Reuters between November 2 and 4.

In three, six and 12 months, the median estimate of those polled had the domestic currency steady at C$1.060 to the U.S. dollar, or 94.34 U.S. cents.

"The combination of strong commodity prices, the global recovery and relative fundamentals should see the Canadian dollar outperform the U.S. dollar, but lag the Australian dollar," said Camilla Sutton and Sacha Tihanyi, currency strategists at Scotia Capital.

But while there have been encouraging signs of economic recovery in Canada, there are also reminders that recession has not yet eased its grip on an economy that relies heavily on exports to the United States.

Last week, gross domestic product data for August -- a 0.1 percent drop after no growth in July -- cast doubt on whether Canada emerged from recession in the third quarter.

The next major piece of domestic data that will likely dictate the currency's near-term direction is Friday's employment report, which is expected to show the economy created 10,000 jobs in October.

A string of upbeat reports coupled with a favorable commodity backdrop could also benefit the Canadian dollar as it may trigger talk about whether the Bank of Canada will have to break its pledge to keep interest rates at record lows through the second quarter of 2010.

"The Canadian dollar is clearly benefiting with oil's performance through 2009 and potential that interest rates in Canada may rise sooner than in the U.S. will enhance strength," said Vimal Popat at Cantor Fitzgerald.