The US dollar was mauled by bears overnight on the back of softer than expected US economic data. A flash Services PMI reading for April dropped to 57.8, missing an expected smaller deterioration to 58.8 (prior 59.2). This has added weight to the growing belief that the Fed’s tone at this week’s FOMC policy meeting will be more dovish than at prior meetings, which is backed by other weak points in the economy and is hurting the US dollar.
Meanwhile, strong Australia economic data over the last couple of weeks has reinvigorated the Australian dollar. The improved rates outlook down under has increased the aussie’s attractiveness to yield seekers. The aussie is improving against most of the majors this week; it was helped this morning by RBA Governor Stevens’ refusal to talk about monetary policy during a speech in Sydney, which resulted in a relief rally in the AUD.
This combination of AUD strength and USD weakness has pushed AUDUSD to an important resistance zone around its 100-day SMA. The pair hasn’t been above this moving average since September last year, and even then there wasn’t a confirmed break. There is also some strong horizontal resistance around the pair’s 100-day SMA (between 0.7920-0.8000) which could add weight to a possible rally in the pair if all of this resistance is broken. From a technical perspective, AUDUSD is looking somewhat strong; there’s bullish divergence between price and RSI on a daily chart are some other tech indicators are also looking strong, but only time will tell…