The US dollar is falling for a third consecutive session in the aftermath of the FOMC’s surprisingly dovish statement last week. As well as the pound and euro regaining some lost ground, the commodity currencies have also fared well, not least because the weaker dollar has given the underlying oil and metal prices a much-needed boost. But the level of interest rates in the likes of New Zealand (3.5%) and Australia (2.25%) are also much higher compared to the US (<0.25%). Indeed, such has been the strength of the AUD and NZD rally that the market has completely ignored another piece of soft Chinese data overnight: the latest HSBC Flash Manufacturing PMI for China slipped to an 11-month low of 49.2 vs. 50.5 expected and 50.7 in February. If the market is able to shrug off a weak number like it has then this is a sign of a strong bullish trend. However we do have the US CPI coming up at 12:30 BST and this has the potential to cause a major move in the FX markets. A much stronger than expected reading of 0.2% for the month of February could see the dollar surge higher, while a number in the negative territory could deliver the final nail in the coffin for the buck.
From a technical point of view, the AUD/USD may have formed a near-term base. As can be seen on the chart, it has broken through a medium term bearish trend line as well as resistance and the 50-day moving average around the 0.7830 area. In addition, the momentum indicator RSI has made a bullish divergence with price recently, which also suggests that the bearish momentum has weakened. For these reasons alone, we may see the Aussie make some more gains in the near term. The next key resistance area to watch is around 0.8020/30. As well as support-turned-resistance, this area also corresponds with the 23.6% Fibonacci retracement level of the last downswing. Therefore should price break through this level as well then it may lead to further short-side profit taking and probably some follow-up technical buying too. If seen, the rally could easily extend towards the 100-day SMA (0.8090) or even the 38.2% Fibonacci level (0.8300) before making its next move.
That said, the break of the trend merely suggests that the bearish momentum has weakened. It is too early to say whether a long-term bottom has been formed. Indeed, should the AUD/USD break and close back below its 50-day SMA, it would more or less invalidate this potentially bullish scenario. What’s more, the dollar’s recent pullback could just be a hiccup inside a long-term bullish trend.