USD/CAD Price Forecast: Bears target the 200-day SMA

USD/CAD continues its downward spiral, falling below 1.4000 and on track for its third weekly loss. The Canadian Dollar has gained strength due to a weaker US Dollar and stronger Canadian economic data, along with higher oil prices providing support to the commodity-linked Loonie. However, monetary policy expectations remain a key focus.

In the US, moderating inflation, weaker consumer spending, and signs of a soft labor market have reduced the likelihood of a Federal Reserve interest rate hike next month. Next week's Consumer Price Index report from Canada will offer new insights into inflation and its potential influence on the Bank of Canada's policy stance. TD Securities anticipates the Bank of Canada will give greater weight to a "softer trajectory for core inflation" during its September meeting, pointing out that the limited "pass-through from higher oil prices" allows for more room to overlook the energy shock.

The bank also believes the recent reduction in core inflation measures supports its assessment of excess supply and capacity to accommodate stronger growth amid the rebound in Q2 GDP. From a technical standpoint, USD/CAD shows a consistent downtrend, forming a series of lower highs and lower lows since moving below 1.4200 in late June.

The pair has since dropped below both the 50-day and 100-day SMAs, indicating oversold conditions. Immediate support lies at the 200-day SMA near 1.3850, followed by a stronger horizontal floor at 1.3700, with a deeper bearish extension targeting the structural level at 1.3542. A potential recovery would face resistance at the 100-day SMA at 1.3920, with any significant rebound likely capped by the higher 50-day SMA at 1.4077, barring sellers losing control of the medium-term trend.