Canadian Dollar Outlook Is Balanced as Tariff Shock Raises Downside Risks, UBS

07:32 AM EDT, 08/28/2026 (MT Newswires) -- The Canadian dollar outlook remains broadly balanced, as stronger domestic fundamentals and firm energy prices offset elevated trade uncertainty with the US and the risk of further policy repricing, according to UBS Investment Research in a note. The Canadian dollar came under pressure after the US imposed 50% tariffs under Section 338, extending trade restrictions beyond the USMCA trade agreement and prompting a reciprocal response from Canadian Prime Minister Mark Carney, wrote the bank in a Thursday note made available to the media on Friday. The move escalates US-Canada trade tensions and could mark a turning point in bilateral ties, with tariffs likely to weigh on Canadian growth and confidence, added UBS. In the near term, positioning suggests scope for further Canadian dollar weakness as markets assess the economic impact of the tariffs. However, UBS expects a reassessment of Bank of Canada and Federal Reserve expectations to limit the upside in USD/CAD to the 1.39-1.40 area, rather than a return to the recent highs around 1.42.