08:54 AM EDT, 04/04/2025 (MT Newswires) -- United States trade tariff announcements are still fresh, and more severe than widely expected, said UBS.

Mexico and Canada, which were in focus early on in President Donald Trump's second term, have fared relatively well in comparison, wrote the bank in a note to clients. USMCA-compliant goods from Canada

and Mexico will be exempt for now.

So far, Mexico has offered concessions to narrow the gap to U.S. demands and Mexican President Claudia Sheinbaum has been nimble in handling relations with the U.S.

UBS thinks the mutual economic dependency will prevent large tariffs from persisting, even if temporarily introduced. Should USMCA members' special status in the new tariff world continue in the coming weeks, the bank estimates the peso (MNX) to at least hold its own against the Canadian dollar (CAD or loonie), while benefiting from more than a six-percentage-point carry advantage.

The bank targets CADMXN 13.60 against a current spot level of 14.2, and UBS thinks a stop-loss of 14.80 is prudent.

The bank also sees the interest rate carry as an important part of its total return expectations. The key risk to the trade would be more lenient treatment of Canada than Mexico should the Trump Administration turn its focus back to its USMCA partners.