08:32 AM EDT, 03/10/2025 (MT Newswires) -- Two-time G7 central banker Mark Carney is set to become Canada's next prime minister after winning the Liberal party leadership race on Sunday to succeed outgoing PM Justin Trudeau, noted UBS.

Carney will become the first Canadian PM to win without first holding office, having made a career in investment banking and then later in monetary and international policy.

The leadership contest comes amid a worsening United States-Canada trade dispute, with Carney on Sunday vowing to keep tariffs on U.S. goods "until the Americans show us respect."

U.S. President Donald Trump on Friday threatened a new 250% tariff on Canadian dairy and unspecified tariffs on Canadian lumber days after pausing planned 25% across-the-board tariffs on goods that comply with the USMCA trade agreement, wrote the bank in a note to clients.

While UBS thinks the odds of a very aggressive tariff scenario have risen in recent weeks, the bank also believes Canadian and Mexican tariffs won't be sustained, given the resulting pressure they would impose on the U.S. economy.

To avoid a bear-case tariff scenario, concessions will likely be needed from both Canada and Mexico, such as more spending on border security and defense, tariffs on Chinese exports to limit transshipments, or a deal on critical minerals access, stated UBS.

The Bank of Canada (BoC) has noted that it is ready to act to support growth if U.S. tariffs do materialize and UBS anticipates it will cut rates by another 25 basis points on Wednesday to 2.75%.

The Canadian dollar (CAD or loonie) doesn't appear to be pricing in a significant tariff risk premium, so UBS sees short-term downside risks. The bank likes selling the USD/CAD downside below 1.4150 over a one-month horizon.