UBS recommends a long USD/CAD position, citing interest rate differences and near-term risks that could support further gains for the U.S. dollar against the Canadian dollar.
UBS Bullish on USD/CAD Outlook
UBS is recommending a long position on the USD/CAD currency pair with a target of 1.425 and a stop loss at 1.38. The bank maintains a neutral view on the Canadian dollar but sees short-term conditions favoring a stronger U.S. dollar.
The bank said rate differentials have been the primary driver of USD/CAD performance this year, with differences between U.S. and Canadian borrowing costs continuing to influence currency movements.
Interest Rate Outlook Supports Dollar
UBS expects both the Federal Reserve and the Bank of Canada to remain on hold, but believes current market pricing leaves room for a modest shift in favor of the U.S. dollar.
The bank noted that a lack of major changes in monetary policy could allow rate differentials to continue supporting USD/CAD momentum.
Canadian Dollar Faces Carry Trade Pressure
While trade-related risks appear largely reflected in markets and Canadian economic data has shown signs of improvement, UBS believes these factors are unlikely to trigger a sharp Canadian dollar recovery.
The lower-yielding Canadian dollar remains under pressure in a carry trading environment, where investors seek currencies offering higher returns.
USD/CAD Could Grind Higher
UBS expects USD/CAD to gradually move higher toward its 1.425 target as investors continue to weigh interest rate expectations, yield differences, and broader market conditions.
