Australian dollar hits parity with its Canadian counterpart as rate outlook diverges

The Australian dollar reached parity with its Canadian counterpart for the first time in over eight years due to differing rate outlooks, widening the gap between the two commodity currencies. The Aussie traded at C$1.0004 on Wednesday after surging 0.2% overnight to hit an 8-1/2-year high of C$1.0012. Its value was also close to a 15-month peak against the euro and near a three-month top on sterling.

The strength of the Australian dollar against major peers is attributed to a significant shift in the Reserve Bank of Australia's (RBA) rate outlook, with a fourth hike this year to 4.6% on September 29 highly likely. However, the Bank of Canada has been slower to adjust its rates, keeping them steady at 2.25% for nearly a year due to subdued inflation and ongoing trade tensions with the US.

There is a 50-50 chance that the Bank of Canada could increase rates next month. Ray Attrill, head of FX strategy at National Australia Bank, suggests that the fall in oil prices, a major export for Canada, may have contributed to the decline of the loonie. The Aussie faced resistance around $0.7140 and found support at $0.7075 against the US dollar, which remained unchanged at $0.7113 after slipping 0.1% overnight.

Trading around $0.7140, the Aussie faces resistance. The New Zealand dollar weakened 0.2% to $0.5718, having slipped below a one-week high of $0.5749 overnight. The technical setup remains bearish, struggling to recover from an 11-week low of $0.5695. Hawkish remarks from Reserve Bank of New Zealand's chief, Anna Breman, have increased expectations of a third rate hike this year to 3% in the upcoming month, although interest rates there remain lower than in several developed economies.