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<p>Oil and gas are soft today in what looks like a giveback from yesterday as a potential rail strike was avoided.</p><p>In the bigger picture, the loonie is struggling against overwhelming and broad US dollar strength. Canadian housing data today showed a 1% price decline but there are signs of stabilization. Those could unravel quickly though if the Bank of Canada continues to hike. </p><p>In trading USD/CAD at the moment, it's critical to appreciate the differences in the mortage markets. In the US, the 30-year fixed is king. That means that rate hikes have no direct impact on people who already own their homes, which is 95% of people. There's a drag for things like home-equity loans but overall the impact is much smaller.</p><p>In Canada, the mortgage market is a combination of variable rates that adjust monthly and 5-year fixed resets. The variable rate holders -- which increased during the boom -- suffer immediately while one-fifth of five-year resets feel the brunt of rate changes each year.</p><p>What it means is that Canadian households and consumers will feel a more-immediate squeeze from higher rates. There will also be a rolling effect with rates staying high. Combined, it means BOC hikes hit harder and faster than in the US.</p><p>Moreover, the Canadian economy has been far too reliant on housing for many years.</p><p>Together that means the Bank of Canada likely can't hike rates above 4% and even hiking above 3.5% could be a policy mistake. If inflation lingers, the Fed will eventually decouple from the BOC. Speculation that's coming (on a more-aggressive Fed) is a catalyst for a sustained break above 1.3200.</p><p>Zooming out, there is some resistance near 1.3400 but I think the eventual top will fall in the 1.3700 range. Eventually, the loonie will be a strong currency as the cycle shifts and commodites rally on better global growth (and underinvestment in the space) but that's a few steps away.</p>

                This article was written by Adam Button at forexlive.com.