Aussie Hits Parity with Loonie as Rate Outlook Diverges

The Australian dollar has hit parity with its Canadian counterpart for the first time in over eight years. The Aussie traded at C$1.0004 on Wednesday after climbing 0.2% overnight to reach an 8-1/2-year high of C$1.0012.

This milestone is largely due to a diverging rate outlook between the two countries, with the Reserve Bank of Australia (RBA) expected to hike interest rates for the fourth time this year to 4.6% on September 29. The RBA's hawkish stance has driven up the Aussie's value against its major peers.

In contrast, the Bank of Canada has been slow to tighten monetary policy, keeping rates steady at 2.25% for nearly a year due to subdued inflation and economic uncertainty caused by the trade war with the US. This divergence in rate expectations has led to a widening gap between the Aussie and the Canadian dollar.

Ray Attrill, head of FX strategy at the National Australia Bank, attributes the price drop in oil, one of Canada's major exports, as weighing on the loonie in recent days. He also expresses skepticism about the potential for the Bank of Canada to tighten monetary policy in the coming months.