Aussie Dollar Hits Parity with Loonie Amid Rate Hike Expectations

Australia's dollar has reached parity with Canada's loonie for the first time since March 2018, as traders anticipate further interest rate hikes from the Reserve Bank of Australia (RBA) while the Bank of Canada is seen as more cautious. Currencies often follow interest-rate expectations: when investors think a central bank is more likely to raise rates, that country's assets can look more attractive, supporting its currency.

The RBA's expected hike to about 4.6% on September 29 is being treated as a done deal by markets, and traders are watching for policymakers' signals of another move in November. In contrast, the Bank of Canada has been hesitant, and recent dips in oil prices, a key Canadian export, have weighed on the loonie.

As a result, the gap between Australian and Canadian rate expectations has widened, nudging the two currencies back to one-for-one. This shift matters for mortgage holders: an RBA move to 4.6% can show up in variable mortgages before it shows up in wages, affecting household incomes.