USD/CAD Price Forecast: Struggles to build on move beyond 100-day SMA pivotal resistance

The USD/CAD pair continues with its struggle to build on the momentum beyond the 100-day Simple Moving Average (SMA) and attracts some sellers at the start of a new week. The downtick, however, lacks bearish conviction and is more likely to remain limited amid a combination of supporting factors. The US Dollar (USD) attracts some buying amid diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). Furthermore, bearish Crude Oil prices could undermine the commodity-linked Loonie and offer some support to the currency pair.

Data released last Thursday showed that US producer prices rose in July at the fastest monthly pace since 2022 and tempered bets for a jumbo 50 bps interest rate cut by the Fed. Adding to this, the preliminary University of Michigan report released on Friday showed that the one-year inflation expectations climbed to 4.9% from 4.5%. Furthermore, the five-year forecast increased to 3.9% from 3.4%, indicating a gain of momentum in price pressures. Meanwhile, the US Consumer Sentiment Index unexpectedly fell to 58.6 in August from 61.7 in the previous month. Moreover, the Expectations Index eased to 57.2 from 57.7 in July, signalling a poor backdrop in public confidence.

This, to a large extent, overshadowed the upbeat US Retail Sales, which rose by 0.5% on a monthly basis in July. This followed the 0.9% increase (revised up from 0.6%) recorded in the prior month and matched consensus estimates. Nevertheless, traders are still pricing in about 85% chances that the Fed will lower borrowing costs at the next policy meeting in September. Moreover, the US central bank is expected to deliver at least two 25-basis-point interest rate cuts in 2025. This, along with the risk-on mood, bolstered by hopes of ending the prolonged Russia-Ukraine war, might hold back traders from placing aggressive bullish bets around the safe-haven Greenback.

The high-stakes meeting between US President Donald Trump and Russian leader Vladimir Putin in Alaska yielded no clear breakthrough. Trump, however, said early Monday that Ukrainian President Volodymyr Zelenskiy can end the war with Russia almost immediately if he wants to. Trump and Zelenskiy, along with the key European leaders, will meet later today to discuss ending Europe's deadliest war in 80 years. This keeps Crude Oil prices depressed near a two-month low touched last week. Apart from this, trade uncertainty, along with the Bank of Canada's (BoC) dovish tilt, could weigh on the Canadian Dollar (CAD) and support the USD/CAD pair.

Traders also seem reluctant and opt to wait for more cues about the Fed's rate-cut path before positioning for the next leg of a directional move. Hence, the focus will remain glued to the release of the FOMC meeting Minutes on Wednesday and Fed Chair Jerome Powell's speech at the Jackson Hole Symposium during the latter part of the week. Apart from this, Canadian consumer inflation figures on Tuesday should contribute to infusing some volatility around the USD/CAD pair.

USD/CAD daily chart

Technical Outlook

The USD/CAD pair’s repeated failures to build on the momentum beyond the downward sloping 100-day Simple Moving Average (SMA) favor bearish traders. However, oscillators on the daily chart are holding in positive territory and back the case for the emergence of some dip-buying around the 1.3755-1.3750 horizontal zone. This is followed by support near the 1.3720 region and the 1.3700 mark, below which spot prices could accelerate the fall towards the next relevant support near mid-1.3600s. The downward trajectory could extend further towards the 1.3600 round figure en route to the year-to-date low, around the 1.3540 region touched in June.

On the flip side, a sustained strength beyond the 1.3815-1.3820 region will be seen as a fresh trigger for the USD/CAD bulls and pave the way for additional gains towards the 1.3875-1.3880 region, or the monthly peak. Some follow-through buying, leading to a subsequent strength beyond the 1.3900 mark, should allow spot prices to climb further to the 1.3950 region and aim towards reclaiming the 1.4000 psychological mark.