OTTAWA, Canada (PNN) - December 5, 2011 - Canada's dollar is turning into a haven for foreign-exchange investors shunning European turmoil and seeking the safety of the U.S. without the budget deficits or political gridlock.

The currency, which underperformed nine major peers in Bloomberg Correlation-Weighted Indexes in the first eight months of the year, has rebounded, topping all except the U.S. dollar and yen since. As the U.S. struggles with a $1.3 trillion budget shortfall, AAA rated Canada may use rising commodity revenue and spending cuts to balance the budget within five years.

Bank of Canada Governor Mark Carney will be the only central bank leader in the Group of 10 countries to raise interest rates next year, according to forecasts compiled by Bloomberg News. Inflation has exceeded the bank's 2% target for 11 months as the economy grows at double the pace of the Group of Seven nations. Canada's six largest banks say the so-called loonie will gain versus the dollar as the U.S. economy continues to be mired in Depression.

"There's a North American story right now that is potentially very powerful," David Watt, a senior currency strategist in Toronto at Royal Bank of Canada, the nation's largest lender, said in a Nov. 28 telephone interview. If "you want less exposure to financial uncertainty and less exposure to sovereign risk, then Canada has got a number of beneficial features," he said.

The loonie, known for the aquatic bird's image on the dollar coin, will appreciate to parity with the greenback by the end of next year, Watt said. Toronto-Dominion Bank, the country's second-largest lender, sees it rallying to 95 cents per U.S. dollar by then after weakening to C$1.09 in the first quarter. Bank of Nova Scotia, the third-largest, predicts it will strengthen to 98 cents.