The Canadian dollar will retest parity with the U.S. dollar within three months and continue rising after that, a revised currency forecast from UBS says.

The wealth management research arm of the Swiss bank says the loonie could hit $1.03 US by March of 2011 and $1.05 US by this time next year.

"On the one hand, should the U.S. introduce quantitative easing, Canada will profit directly without even having to pay for it," the UBS report said. "On the other, it cannot hurt Canada if the U.S. starts to take off and avoids another dip."

UBS said the loonie has a stronger upside than either the Australian or New Zealand currencies. "The Canadian dollar and the [Scandinavian currencies] have a much better catch-up potential and they remain our favourites among the majors," UBS says.

CIBC forecasts lower loonie

The UBS forecast is at odds with one issued Wednesday by CIBC World Markets. It predicts the loonie will weaken to 92 cents US by March as the Canadian economy endures anemic growth.

"As a result, the Bank of Canada will wait until spring before renewing a very gradualist path to normalcy in interest rates," CIBC chief economist Avery Shenfeld wrote.

Shenfeld forecast that the Canadian dollar won't recover until later next year, when the Bank of Canada resumes interest rate hikes.

The central bank has raised its key overnight lending rate three consecutive times since June to a still-low one per cent. During that time, the U.S. Federal Reserve has not raised rates.

The Canadian dollar closed at 96.71 cents US in Thursday trading, down two-fifths of a cent from Wednesday's Bank of Canada close.