UBS Forecasts USD/CAD to Reach 1.42 by 2026
- Key Points:
- UBS Forecasts USD/CAD to Reach 1.42 by 2026: Swiss investment bank UBS reiterates its long-term forecast for the USD/CAD exchange rate to rise significantly over the next two years.
- Market Drivers: Divergent Economic Policies: The prediction is driven by diverging monetary policy approaches between the US Federal Reserve and the Bank of Canada, along with broader economic fundamentals.
- Commodities and Oil Prices Add Complexity: As Canada is a major oil exporter, fluctuations in global oil prices could impact CAD strength, adding some uncertainty to the forecast.
UBS, one of the world’s largest investment banks, has reaffirmed its forecast that the USD/CAD (US Dollar to Canadian Dollar) currency pair will reach 1.42 by the end of 2026. This means UBS expects the Canadian dollar to weaken significantly compared to the US dollar over the next two years. This projection is based on several macroeconomic factors, particularly the strength of the US economy compared to Canada’s, coupled with differing monetary policy directions.
UBS believes the US will maintain higher interest rates for longer, while Canada, facing more housing debt pressures, may cut rates sooner or more aggressively to support its slowing economy.
This outlook has important implications for financial markets. A higher USD/CAD rate would affect Canadian exports and imports, potentially making Canadian goods cheaper abroad but also raising the cost of importing US goods. For investors, businesses, and travelers, exchange rates like this matter a lot. The weakening of the Canadian dollar also points to broader concerns about slower economic growth in Canada, especially as consumers face high debt levels and slower wage growth. On the other hand, if the Federal Reserve keeps interest rates “higher for longer,” demand for the USD might stay strong as global investors seek better yields from US assets.
From a technical perspective, the USD/CAD pair is currently trading around 1.37 (as of early June 2024), which is significantly below UBS’s long-term projection of 1.42. For that target to be met, USD/CAD would have to rise roughly 4-5% over the next two years. Technical indicators show some upward momentum for the pair amid possible interest rate cuts by the Bank of Canada — possibly as soon as mid-2024 — which contrasts with a more cautious Federal Reserve.
Commodities like oil also play a big role: higher oil prices typically strengthen the Canadian dollar since Canada is a major oil exporter. But if oil prices remain volatile or drop due to weaker global demand, the Canadian dollar could decline regardless of internal policy shifts.
Hot Take: UBS’s USD/CAD forecast serves as a reminder of how economic fundamentals, interest rates, and commodities shape currency markets over time. For average people, a weaker Canadian dollar could mean more expensive goods from the US or pricier vacations. For investors, aligning with trends in currency markets may create profit opportunities — but it also involves closely watching central bank signals and economic data.
While UBS’s 1.42 forecast may seem distant, with rate cuts on the horizon and global uncertainty brewing, it’s not out of the question. Keep your eyes on oil prices and rate decisions – they will be the signals to watch for CAD’s next big move.
