USD/CAD Price Forecast: Seems poised to surpass 200-day SMA, around 1.4000 mark

The USD/CAD pair oscillates in a narrow band below mid-1.3900s through the first half of the European session on Thursday, though it remains well within striking distance of the highest level since May 20 retested the pervious day. Crude Oil prices struggle to register any meaningful recovery and languish near a four-month low touched on Wednesday amid concerns about oversupply. Investors seem worried that a prolonged US government shutdown could have an adverse effect on the world's largest economy and dent fuel demand. This comes amid speculations of higher output by OPEC+ and continues to weigh on the black liquid, which is seen undermining the commodity-linked Loonie.

The USD/CAD bulls, however, seem reluctant amid the prevalent US Dollar (USD) selling bias. Traders ramped up their bets that the US Federal Reserve (Fed) will lower borrowing costs two more times this year, in October and December, following the disappointing release of private-sector employment details on Wednesday. Automatic Data Processing reported that private companies shed 32K jobs in September, marking the biggest drop since March 2023. Moreover, the August payrolls number was also revised down to show a loss of 3K jobs compared to an increase of 54K reported initially. This offsets an improvement in the US ISM Manufacturing PMI, which rose from 48.7 to 49.1 in September.

The latter still indicated a contraction in the manufacturing business activity for the seventh consecutive month. Meanwhile, US government agencies began shutting down after President Donald Trump's Republican Party failed to agree with opposition Democrats on a way forward on a spending bill. However, investors, so far, seem unfazed amid expectations of a limited impact on the economic performance, which is evident from a generally positive tone around the global equity markets. This turns out to be another factor weighing on the safe-haven buck and acting as a headwind for the USD/CAD pair. Nevertheless, the lack of any meaningful selling warrants some caution for aggressive bearish traders.

This week's important US macro releases, scheduled at the beginning of a new month, including the closely-watched Nonfarm Payrolls (NFP) report on Friday, could be delayed amid the US government shutdown. This, in turn, leaves the USD at the mercy of speeches from influential FOMC members. Apart from this, Oil price dynamics might contribute to producing short-term trading opportunities around the USD/CAD pair.

USD/CAD daily chart

Technical Outlook

The recent repeated rebounds from 1.3725-1.3720 horizontal support and this week's resilience below the 1.3900 mark favor the USD/CAD bulls. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, suggesting that the path of least resistance for spot prices remains to the upside. Some follow-through buying beyond the 1.3955-1.3960 area, or the multi-month top, will reaffirm the constructive outlook and allow the pair to reclaim the 1.4000 psychological mark for the first time since May. The said handle coincides with a technically significant 200-day Simple Moving Average (SMA), which, if cleared, decisively will set the stage for the resumption of the uptrend witnessed over the past two weeks or so.

On the flip side, any corrective pullback might continue to attract dip-buyers near the 1.3900 mark. Some follow-through selling below the 1.3885 region area, however, could expose the next relevant support near the 1.3845 horizontal support before the USD/CAD pair drops to the 1.3800 round figure. A convincing break below the latter would negate the positive bias and make spot prices vulnerable to accelerate the fall slide towards the 1.3770 area en route to the 1.3725-1.3720 pivotal support.