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

By Stella Qiu

SYDNEY, Sept 23 (Reuters) - The Australian dollar hit parity with its Canadian counterpart for the first time in more than eight years as diverging rate outlooks drove a widening gap between the two commodity currencies.

The Aussie traded at C$1.0004 AUDCAD=R on Wednesday after climbing 0.2% overnight to hit an 8-1/2-year top of C$1.0012. It was also hovering near a 15-month high against the euro EURAUD=R at A$1.6082 and not far from a three-month peak on sterling GBPAUD=R at A$1.8753.

The Aussie's strength against its major peers has been driven by a sharp shift in the Reserve Bank of Australia's rate outlook, with a fourth hike this year to 4.6% on September 29 all but locked in. The question is whether it would keep the door open to another move in November. 0#AUDIRPR

In contrast, the Bank of Canada has lagged behind the global tightening cycle, having held rates steady at 2.25% for nearly a year as inflation remained subdued and a trade war with the US clouded the economic outlook. There is an even chance that it could lift rates next month.

"I think it's very consistent with the repricing of RBA hiking expectations," said Ray Attrill, head of FX strategy at the National Australia Bank, adding that the price drop in oil, one of Canada's major exports, likely weighed on the loonie in recent days.

"We are sceptical that what is priced in as far as the potential Bank of Canada tightening over the remainder of this year is actually going to be delivered."

Against the US dollar, the Aussie AUD=D3 was flat at $0.7113, having slipped 0.1% overnight. It faces resistance around $0.7140 and has support at $0.7075.

All eyes are on the jobs data on Thursday where forecasts are centred on a rise of 20,000 jobs in August, with the unemployment rate holding steady at 4.5%.

It would likely take a sharp and unexpected jump in unemployment to derail bets on a rate hike next week after RBA Governor Michele Bullock said an unemployment rate of 4.5% to 5% could help restrain inflation.

The kiwi NZD=D3 eased 0.2% to $0.5718, having retreated from a one-week top of $0.5749 overnight. Having slid over 4% from its August peak, the technical set-up is still bearish as it struggles to bounce off an 11-week low of $0.5695.

Hawkish comments from Reserve Bank of New Zealand chief Anna Breman have helped nudge up bets of a third rate hike this year to 3% next month at 75%, but interest rates there are still lower than in many other developed economies.

(Reporting by Stella Qiu; Editing by Thomas Derpinghaus)