08:27 AM EDT, 03/23/2026 (MT Newswires) -- The Bank of Canada kept rates steady at 2.25% last week, in line with market expectations, despite ongoing softness in the domestic economy, said UBS.

The bank expects rates to remain unchanged and disagrees with market pricing for a hike this year. If anything, the pronounced weakening in the labor market points to risks of another rate cut.

Higher oil prices are providing some support to growth and inflation in both Canada and the United States, given their status as energy exporters, pointed out UBS.

While the Canadian dollar (CAD or loonie) has benefited from firmer energy prices, its medium-term outlook remains "subdued," stated the bank.

The currency lacks support from carry, and ongoing USMCA trade deal negotiations are likely to continue weighing on sentiment, added UBS.

As a result, the bank doesn't anticipate significant upside for the CAD and expects USD/CAD to hover above 1.35 in the near term before stabilizing at that level.