AUD/USD Outlook: Sustained strength beyond 0.6600 could pave the way for further gains

The AUD/USD pair build on this week's goodish rebound from the 0.6480 region, or its lowest level since March 5 and scales higher for the third successive day on Thursday. The momentum lifts spot prices back closer to the 0.6600 mark during the early European session and is supported by the prevalent selling bias surrounding the US Dollar (USD). A survey published by the Institute for Supply Management (ISM) showed that growth in the US services sector lost momentum in March. In fact, the ISM Services PMI dropped to 51.4 from 52.6 in February, while the Prices Paid sub-component declined to 53.4 from 58.6. This, in turn, lifts bets that the Federal Reserve (Fed) will start cutting interest rates in June, which led to the overnight downfall in the US Treasury bond yields. This, along with a positive risk tone, is seen undermining the safe-haven Greenback and benefiting the risk-sensitive Australian Dollar (AUD).

Meanwhile, Automatic Data Processing reported that US private sector employment rose by 184K in March against the 148K expected and the previous month's upwardly revised reading of 155K. Adding to this, Fed Chairman Jerome Powell did not specify the timing or scale of the potential rate cuts and said that it would take a while to evaluate the current state of inflation before lowering the borrowing costs. This helps limit the downside for the US Treasury bond yields, which, along with persistent geopolitical risk, should limit the ongoing USD corrective slide from its highest level since February 14. Apart from this, the dovish Reserve Bank of Australia (RBA) meeting minutes released earlier this week, indicating that policymakers did not consider the case for an interest rate hike in March, might cap the AUD/USD pair.

Market participants now look forward to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims and Trade Balance data. This, along with speeches by FOMC members, the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the AUD/USD pair. The focus, however, will remain glued to the crucial US labor market report on Friday, which, in turn, warrants some caution before placing fresh directional bets and positioning for any further appreciating move for spot prices.

Technical Outlook

From a technical perspective, any subsequent move beyond the 0.6600 mark, or the 100-day Simple Moving Average (SMA), could attract some sellers near the 0.6630-0.6635 supply zone. This, in turn, might cap the AUD/USD pair near the monthly swing high, around the 0.6665-0.6670 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and lift spot prices beyond the 0.6700 mark, towards testing the next relevant hurdle near the 0.6725-0.6730 area.

On the flip side, weakness back below the 200-day SMA, currently pegged near the 0.6550-0.6545 region, could make the AUD/USD pair vulnerable to challenge the 0.6500 psychological mark. This is closely followed by the 0.6480 region, or a near one-month low, which if broken decisively should pave the way for additional losses. Spot prices might then slide to the year-to-date low, around the 0.6445-0.6440 region touched in February, en route to the 0.6400 mark and the 0.6355-0.6350 support.

AUD/USD daily chart