07:19 AM EDT, 07/06/2026 (MT Newswires) -- The Canadian dollar outlook has weakened after June's decline, driven by lower crude oil prices and higher U.S. front-end yields, MUFG said in a note published last week.

Going forward, the U.S. dollar-Canadian dollar exchange rate (USD/CAD) is likely to remain more supported than previously expected as short-term U.S.-Canada rate spreads favor the U.S. dollar, according to MUFG.

The Bank of Canada is likely to stay on hold amid spare capacity and weak growth, despite a temporary inflation boost from energy-related effects, which will limit support for the Canadian dollar, the bank said.

Meanwhile, a sharp decline in crude oil prices removes a key Canadian dollar tailwind and dampens its responsiveness to risk-on moves, added the bank.

A modest Q2 rebound is unlikely to materially alter the policy outlook, while the trade uncertainty related to the renegotiation of the U.S.-Mexico-Canada Agreement, or USMCA, adds further headwinds, pointed out MUFG. Even if the Federal Reserve doesn't ultimately tighten, expectations of a tighter U.S. policy stance keep spreads skewed against the Canadian dollar.