07:48 AM EDT, 03/28/2025 (MT Newswires) -- USDCAD has been moving closer to this year's lower bound, said UBS.

However, with recessionary risks looming large over the Canadian economy, the bank thinks the exchange rate trajectory is still likely to be upward in Q2. Survey data already point to weaker activity ahead on the consumer and business side.

As a consequence, UBS wouldn't be surprised if hard data soften further with the labor market readings next week potentially coming in on the disappointing side. With higher inflation than expected, there isn't much room to lower rates either beyond one or two more 25bps cuts, in the bank's view.

Such a stagflationary backdrop is rarely positive for a currency.

At this point, with tariffs front and center, the bank's bias is for USDCAD to soon rise into a 1.44-1.46 range, rather than step down meaningfully below 1.42 in the coming weeks.