US government shutdown fails to halt USDCAD's rally to 1.4

The USDCAD pair hit a new four-month peak at the end of last week before its ascent paused. Nevertheless, a full-scale correction has yet to materialize, with prices only retreating to 1.39. This suggests the US dollar may continue to surge against the Canadian currency, a move traders will soon attempt to capitalize on. The next target for a leg up could be the May highs near the key 1.4 zone.

Although the Stochastic Oscillator suggests a continued correction, the current consolidation period would be sufficient for quotes to work off their overbought condition. A pullback that holds above the 1.385 level and the 200-day exponential moving average (EMA 200) could signal renewed buying interest in USDCAD. On top of that, the daily chart shows a potential "golden cross"—a crossover of the EMA 50 above the EMA 200—that may form in the coming days. The last time this phenomenon occurred was nearly a year ago, after which a three-month uptrend followed.

Financial markets are now focused on the looming US government shutdown. Beginning October 1st, a broad suspension of state services will take effect and persist until Republicans and Democrats agree on a budget. This situation is likely to postpone the release of key economic indicators, most notably September's labor market report scheduled for Friday. Despite these developments, traders anticipate only a limited impact on the greenback's strength, with some even predicting no pressure at all.

While certain currencies might exploit this period of US uncertainty to advance against the dollar, its Canadian counterpart is poorly positioned to do so. Significant headwinds are expected due to falling oil prices and the resurgence of trade tensions, as Donald Trump has outlined plans to raise import duties on lumber and furniture. Therefore, the American government shutdown appears to be merely postponing further appreciation in USDCAD, leaving only the timing of its resumption up in the air.

The following trading strategy may come into play:

Buy USDCAD in the 1.385–1.39 range. Take profit: 1.4. Stop loss: 1.38.