Canadian Dollar Falls to Parity with Aussie Buck Amid Diverging Economies

The Canadian dollar has been struggling in recent times, losing more than two percent of its value against the US dollar and falling below 71 US cents.

According to Douglas Porter, chief economist at BMO Capital Markets, the loonie's decline is not just due to a strong US dollar. The Canadian currency has also been losing ground against other currencies, including the Australian dollar.

For the first time since 2018, the Canadian dollar is now at parity with the Australian dollar on a sustained basis, meaning that a fistful of Aussie dollars is worth about the same as a fistful of Canadian dollars. This shift in value can be attributed to the diverging economies of Canada and Australia.

Canada's gross domestic product has slumped to 1.6 percent, while Australia's economy has stormed ahead to 3.3 percent, more than double that of Canada. The Reserve Bank of Australia recently raised its interest rate to 4.6 percent, taking borrowing costs to the highest level in 15 years in an effort to cool inflation.

Meanwhile, CIBC economists Avery Shenfeld and Katherine Judge predict that the Canadian dollar will continue to struggle due to expected interest rate hikes from the Federal Reserve. They expect the Fed to raise rates again in October, widening the gap with the Bank of Canada's rate and putting further pressure on the loonie.