UBS Sees USD/CAD Tumbling to 1.36 by Mid-2027 Amid Fading Fed Tightening Expectations

The US Dollar to Canadian Dollar (USD/CAD) exchange rate has rebounded as Canada-US trade tensions escalate, but UBS still sees the pair falling to 1.36 by June 2027.

According to a recent strategy note from UBS, USD/CAD can find near-term support despite fading Fed tightening expectations and softer US inflation data. The bank argues that the Bank of Canada (BoC) is less likely to hike rates due to Canada's nascent economic recovery.

The collapse of Canada-US trade negotiations over the weekend has added uncertainty to the Canadian Dollar, with Washington imposing 50% tariffs on $20bn of Canadian products and Ottawa preparing dollar-for-dollar retaliation. UBS expects USD/CAD to finish the year slightly higher at 1.39 before falling once the Federal Reserve eventually moves back towards rate cuts.

The bank advises selling the pair above 1.40, with 1.37 providing support in the near term. However, stronger growth could force the BoC to tighten earlier than expected, while renewed Fed hikes or further USMCA deterioration could send the pair above the bank's 1.40 selling area.