07:11 AM EDT, 03/14/2025 (MT Newswires) -- There has been a lot of back and forth with regard to United States tariffs on Canadian exports recently, noted UBS.

While it's difficult to keep track with narratives changing by the hour, the worst-case scenario -- a blanket 25% tariff -- has been averted so far, wrote the bank in a note to clients.

UBS pointed out it has argued for some time that USDCAD has

long been complacent about tariff-related risks. However, in

recent days, the exchange rate has shown higher sensitivity

to this.

While the bank agrees with markets that a major trade war escalation would be too costly - -even for President Donald Trump's administration -- UBS also doesn't believe that the end-game is a "blue-sky" scenario without tariffs altogether.

So, the bank thinks a larger risk premium in USDCAD would be warranted and it has revised its short-term forecasts upward to 1.46 for June.

In line with this, downside volatility-selling strategies remain worthwhile over this horizon. In the second half of the year, however, UBS believes USDCAD will trade lower -- in tandem with broader US dollar (USD) weakness -- to end the year at

1.42.