UBS Predicts USDCAD to Drop to 1.34-1.35 by Mid-2025 as CAD Strengthens

UBS has issued a forecast predicting a decline in the USDCAD currency pair toward the 1.34-1.35 range by mid-2025, signaling a strengthening Canadian dollar relative to the U.S. dollar [1]. The prediction is grounded in an assessment of monetary policy, economic fundamentals, and global market dynamics. UBS attributes the expected CAD strength to a resilient Canadian economy, a commodity-linked boost from higher oil prices, and the potential for prolonged tighter monetary policy from the Bank of Canada [1]. Meanwhile, a weakening U.S. dollar is anticipated as the Federal Reserve begins to cut interest rates amid moderating inflation and a potential slowdown in U.S. economic growth [1].

The strengthening of the Canadian dollar is tied to several key factors. First, the Bank of Canada’s policy stance remains a critical determinant. If inflation remains persistent and the domestic economy shows resilience, the BoC may delay rate cuts or even implement further tightening, attracting foreign capital and increasing demand for the Canadian dollar [1]. Second, as one of the world’s largest oil exporters, Canada’s currency is closely linked to global crude prices. A sustained rise in oil prices would directly support the CAD by improving the country’s trade balance and export revenues [1]. Third, strong economic fundamentals in Canada, including a healthy labor market and stable housing sector, are expected to underpin the currency’s strength [1].

Conversely, the U.S. dollar is forecasted to weaken, primarily due to expected easing by the Federal Reserve. With inflation cooling and economic growth showing signs of slowing, the Fed is anticipated to implement rate cuts, reducing the appeal of U.S. dollar assets and leading to capital outflows [1]. A weaker U.S. dollar would create favorable conditions for the Canadian dollar, particularly if Canada’s economic performance outpaces that of the U.S. [1]. Global risk appetite also plays a role, as a shift away from safe-haven assets like the U.S. dollar during periods of economic normalization could further support the CAD [1].

For traders and investors, UBS’s forecast opens up several strategic opportunities. Shorting the USDCAD pair is a direct way to benefit from the expected decline [1]. Additionally, investing in CAD-denominated assets, such as Canadian equities or bonds, could provide higher returns as the currency appreciates [1]. Businesses with exposure to CAD or USD can also refine their hedging strategies based on this long-term outlook [1]. However, UBS cautions that while the overall trend is clear, precise timing and execution are critical. Traders should integrate both technical and fundamental analysis and maintain robust risk management practices [1].

The broader UBS economic outlook suggests a global environment where inflation gradually recedes, allowing central banks to shift from tightening to easing cycles. This transition is expected to influence currency valuations, with growth differentials between countries playing a key role in shaping capital flows [1]. UBS’s forecast also considers the possibility of a soft landing for major economies, where inflation returns to target without triggering a severe recession, further supporting the case for a stronger Canadian dollar [1].

Despite the strong foundation of the forecast, several risks remain. Sudden shifts in economic data, such as an unexpected rise in U.S. inflation or a slowdown in Canada’s commodity export sector, could disrupt the projected trajectory [1]. Geopolitical events, such as conflicts or crises that trigger flight-to-safety flows into the U.S. dollar, could also counteract the forecast [1]. Additionally, volatility in oil prices or divergent central bank policies could lead to unexpected outcomes [1]. Therefore, while UBS’s outlook offers a directional guide, it is essential for market participants to remain flexible and responsive to evolving conditions [1].

UBS’s projection underscores a significant shift in the USDCAD dynamic, driven by a combination of domestic and global factors. Traders and investors are advised to consider these developments in their strategic planning, while maintaining disciplined risk management and monitoring key economic indicators for any signs of deviation from the forecast [1].

Source: [1] USDCAD Forecast: UBS Predicts Crucial Decline Towards 1.34-1.35 by Mid-2025 (https://coinmarketcap.com/community/articles/688c86b5198ae85eb5d9d854/)