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A Canadian dollar or loonie.

Jonathan Hayward/THE CANADIAN PRESS

Canadian investors who are sitting on some idle cash have discovered that that cash isn't so idle after all: Against the U.S. dollar, the loonie has been flirting with the 94-cent level, up from about 89 cents in March.

But some observers expect that the Canadian dollar's decline against the greenback is about to resume, providing a good reason to look south for potential investment ideas.

Andrew Grantham and Nick Exarhos at CIBC World Markets argued in a note that there are two reasons why the loonie is headed down. First, the former flood of international money into Canadian securities is slowing to a trickle, relatively speaking. The six-month average has fallen to about $3-billion in net purchases from about $10-billion in recent years.

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And secondly, the Bank of Canada is going to be concerned about the impact on exports should the loonie's rise continue, due to, say, a higher inflation reading or stronger oil prices.

"So even though investors have dropped their bearish stance" – in the sense that the herd isn't shorting the Canadian dollar now – "don't expect [Bank of Canada] Governor Poloz to do the same with his neutral rate stance next week, making now a potentially good time to buy the U.S. dollar," Mr. Grantham and Mr. Exarhos said.

Avery Shenfeld, chief economist at CIBC World Markets, believes that the loonie could be significantly weaker in the first half of 2015, as the U.S. Federal Reserve turns to interest rate hikes while the Bank of Canada stands pat. He thinks the loonie could be worth just 87 cents a year from now.

If he's right, that suggests a decent return on any U.S.-dollar investment from currency gains alone.

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