On the back of a weakening US dollar, the AUD/USD pair has been gaining strong positive momentum for the third day in a row.
A survey published by the ISM Institute for Supply Management found that growth in the US services sector slowed in March. In fact, the ISM Services PMI dropped to 51.4 from February's 52.6. This, in turn, increases the likelihood that the Federal Reserve will begin cutting interest rates in June. These prospects have led to a sudden plunge in US Treasury yields. Along with the positive risk sentiment, it undermines the US dollar and benefits the risk-sensitive Australian dollar.
Plus, Automatic Data Processing reported that US private sector employment increased by 184,000 in March versus an expected 148,000. The figure for the previous month was upgraded to 155,000.
In addition, Fed Chairman Jerome Powell's speech did not clarify the timeline and scale of potential rate cuts. Citing his words, it will take time to assess the current state of inflation before reducing borrowing costs.
This helps limit the decline in US Treasury yields and, in tandem with persistent geopolitical risk, should cap the dollar's ongoing corrective decline.
Besides, the Reserve Bank of Australia's dovish minutes released earlier this week indicated that policymakers were not considering a rate hike in March. This could stall the AUD/USD pair's dynamic.
Market participants will need to watch the US economic reports, which include weekly initial jobless claims and trade balance data. Economic indicators, along with FOMC speeches, Treasury yields, and broader risk sentiment, will encourage demand for the US dollar, thereby providing some momentum to the AUD/USD pair. However, the main attention will need to be paid to the US labor market report on Friday.
From a technical viewpoint, any subsequent move beyond 0.6600, i.e. the 100-day simple moving average SMA, could attract some sellers amid closing long positions near the 0.6630-0.6635 supply zone. This, in turn, could expose AUD/USD to buying near the March high of 0.6665. Some subsequent buying activity will be seen as a new trigger for the bulls and will lift spot prices beyond the 0.6700 mark. The price will head towards testing the next relevant resistance at the 0.6730 area.
On the downside, a fall below the 200-day SMA could leave AUD/USD vulnerable to struggling against the psychological 0.6500 level. This is followed by a one-month low at 0.6480. In case of a decisive breakout, the instrument might incur extra losses. Spot prices could then retreat to the early-year lows reached in February, on the way to the round 0.6400 level.
