USD/CAD Dips Below 1.4000 as Bears Eye 200-Day SMA Support

The USD/CAD currency pair extended its decline below 1.4000 during Friday’s session, marking a third consecutive weekly loss. At the time of writing, the pair traded around 1.3877, a level not seen since early July. This downward movement reflects continued weakness in the U.S. dollar, compounded by relatively stronger Canadian economic data and rising oil prices, which bolster the commodity-linked loonie.

Monetary policy expectations remain a key focus. In the U.S., cooling inflation trends, softening consumer spending, and labor market cooling indicators have reduced the likelihood of a Federal Reserve rate hike next month. Meanwhile, Canada’s upcoming Consumer Price Index (CPI) report will clarify inflationary pressures and shape the Bank of Canada’s policy path for September.

Bank of Canada Likely to Focus on Subdued Core Inflation Amid Gradual Output Gap Closure

TD Securities analysts anticipate the Bank of Canada will emphasize the “softer core inflation trajectory” at its September 2 decision. Limited energy price passthrough allows the bank to scrutinize underlying inflation more closely. Recent decelerations in core inflation measures align with the Bank’s view of excess capacity and a gradual closure of the output gap following Q2 rebound in GDP.

This perspective suggests the Bank will maintain its cautious messaging, prioritizing persistent inflationary pressures and a measured approach to normalizing monetary policy.

Technical Analysis

From a technical standpoint, USD/CAD remains in a sustained downtrend, with lower highs and lows forming since a reversal from above 1.4200 in late June. The pair breached both the 50-day and 100-day Simple Moving Averages (SMAs), reinforcing bearish momentum. The Relative Strength Index (RSI) near 29 signals oversold conditions, though the MACD remains in negative territory, suggesting further downside potential.

Key support levels emerge at the 200-day SMA (~$1.3850), followed by a significant horizontal floor at 1.3700. A break below these levels could target the structural floor at 1.3542. On the upside, recoveries face resistance at the 100-day SMA (1.3920) and the 50-day SMA (1.4077), with the latter capping meaningful rebounds unless buying momentum intensifies.

US Dollar Performance Against Major Currencies Today

The table below illustrates the percentage changes of the US Dollar (USD) against major currencies. The USD weakened broadly, with the strongest losses against the Australian Dollar and NZD, while maintaining relative resilience against the CHF and JPY.

Note: The technical analysis of this story was written with the help of an AI tool.

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