UBS expects USDCAD to decline toward 1.34-1.35 in second half of 2025

UBS projects the USD/CAD pair to trend downwards to 1.34-1.35 by H2 2025, expecting a sustainable break of the 1.36 support and indicating readiness to increase downside exposure at the 1.40 resistance. While driven by central bank policies and interest rate differentials, this bearish outlook faces significant risks from potential tariff escalation, global risk-off shifts, or oil price slumps. The pair's movement is critical for US-Canada trade relations and various North American economic sectors.

Analysis

UBS has issued a bearish forecast for the USD/CAD currency pair, projecting a decline to the 1.34-1.35 range by the second half of 2025. The bank's analysts identify the 1.40 level as a strong technical resistance and a strategic point to increase downside exposure, while anticipating that the 1.36 support level will be sustainably broken in the near term. This outlook is primarily driven by the expected evolution of central bank policies and interest rate differentials between the United States and Canada. However, the forecast carries significant risks that could invalidate the thesis. A potential escalation in trade tariffs poses a major downside risk for the Canadian dollar, as would a broader global risk-off market shift or a material slump in oil prices, given the loonie's sensitivity to commodity markets. The movement of this currency pair remains a critical barometer for North American trade, with direct implications for the manufacturing, energy, and agricultural sectors.

Key Decisions for Investors

• Traders may consider initiating short USD/CAD positions, using the 1.40 resistance level as a key area to build exposure for a targeted move towards 1.34-1.35 in H2 2025.
• Investors must closely monitor key risk factors, specifically any developments in US-Canada tariff policies, global risk sentiment, and oil price volatility, as these could rapidly reverse the forecasted trend.
• Equity investors with holdings in Canadian export-focused companies should assess the potential for a stronger loonie to create earnings headwinds and review the adequacy of their currency hedging strategies.