New 'reciprocal' tariffs are having little market impact. Canada deserves special attention in our view, though, especially after Mexico secured another pause extension yesterday, ING's FX analyst Francesco Pesole notes.

USD/CAD to target 1.40 in the near-term

"Despite partial USMCA protection from the new 35% levy, we think markets continue to underestimate the downside risks for the Canadian economy. Expectations remain that the US and Canada will reach a deal, but progress on negotiations has been lacklustre so far and Canada’s recognition of Palestine as a state created another stumbling block."

"Earlier this week, the Bank of Canada seemed to leave the door very much open to additional rate cuts if activity and/or the jobs market deteriorates. We see risks on both of these fronts, and 15bp pricing by year-end continues to appear overly conservative. We expect at least one cut by year-end in Canada, and target 1.40 in USD/CAD near-term."