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Could this be the hottest currency trade of 2014?

While shorting the Japanese yen was the hottest trade of 2013, betting against the Canadian dollar could be an equally profitable trade this year, according to a foreign exchange strategist.

The Canadian dollar, or the loonie as the currency is commonly called, has lost over 4.5 percent against the U.S. dollar in the past three weeks alone, to trade at its weakest level in more than four years.

"The currency either goes absolutely nowhere, which has been the case since 2011, or it starts to move like in 2007-2009. Right now, there's not much in the way of positives for the loonie," Rodriguez, told CNBC on Thursday.

(Read more: Dollar up on Fed taper view, Canadian dollar sinks)

"When you have that kind of momentum, it's a thing that feeds onto itself - given the intensity of declines, the Canadian dollar looks like a great trade," he added.

Rodriguez forecasts the Canadian dollar will weaken to C$1.17 per U.S. dollar – levels not seen since May 2009 – as early as April. This represents further downside of 5 percent for the currency, which was last quoted at C$1.11.

Factors weighing on the currency's outlook include declining commodity prices and a deep divergence between U.S. and Canadian monetary policies.

Nick Koudis | Photodisc | Getty Images

While the U.S. economy stages a recovery, Canadian economic growth has slowed markedly with employment seeing a surprisingly large drop last month.

Bleak economic conditions forced the Bank of Canada to maintain its highly accommodative stance, keeping its benchmark rate steady at 1 percent at its monetary policy meeting on Wednesday.

(Read more: Yen set for worst year since YMCA topped the charts)

The central bank also left the door open to a rate cut, saying that it has become more concerned about weak inflation, and that a "strong currency" is still hampering the country's exports. The dovish comments sent the loonie toward its weakest level since September 2009 overnight.

Additionally, unlike the yen, the loonie is not a crowded trade, which makes it a safer bet, Rodriguez said. "If everyone's short, people will take profits at the first sign of danger, and when you see a high level of leverage, that move can happen very rapidly," he said, referring to the yen.

In its top trade recommendations for 2014, Goldman Sachs also advised investors to go short the Canadian dollar against the greenback.

The key to understanding the Canadian Dollar weakness is the large current account deficit that has been at about 4 percent of gross domestic product since the global financial crisis, Thomas Stolper, chief currency strategist at Goldman Sachs wrote in a note on Wednesday.

(Read more: This could be the hottest currency trade of 2014)

"Initially it was easily funded by record capital inflows into Canada, much of this in the form of fixed income investments by global reserve managers who tried to diversify out of U.S. dollar and into commodity currencies," Stolper said.

"However, the period of record inflows into Canadian fixed income is clearly over. The current account deficit remains large and the BBoP [Broad Basic Balance of Payments] has slipped further into negative territory," he said, noting that the balance of payments generally determines the pace of appreciation or depreciation.

—By CNBC's Ansuya Harjani. Follow her on Twitter @Ansuya_H

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