AUD/USD Continues Downtrend Despite Services Expanding Again

AUD/USD has been on a downtrend for more than two months and last month’s retrace higher is already over. This morning the February services report showed that activity finally grew, leaving behind contraction, but that didn’t help the Australian dollar much.

AUD/USD H4 Chart – MAs Are Acting As Resistance

Last week this pair turned bearish after failing at the 200 SMA (purple) on the H4 chart and it opened the new week with another decline yesterday, returning to test the support level around 0.6500 after experiencing two consecutive sessions of gains. The renewed downward momentum in the Australian Dollar coincided with a rebound in the strength of the Greenback.

This movement has occurred within the broader context of ongoing speculation regarding the timing of the first interest rate cut by the Federal Reserve (Fed), with market participants increasingly anticipating it to take place in June. Today’s services report which was impressive, didn’t really offer much to AUD traders, however, there were caveats in it.

Australian Services PMI for February

• Australian services PMI for February (final) comes in at 52.1 points
• Preliminary services PMI for February was 52.8 points
• January services PMI was 49.1 points
• Composite for February 52.1 points
• Preliminary composite was 51.8 points
• January composite was 49.0 points

The final Services PMI report indicates notable improvements in key indicators compared to the Flash release:

• Business activity surged by 6 points compared to December, reaching 53.1, the highest level since April last year. This suggests a significant expansion in service sector activity.
• The new orders index also witnessed a sharp increase, rising to 53.1, its highest reading since May 2022. This indicates growing demand for services, which bodes well for future business activity.
• Despite the slowdown in activity indicators over the past year, the employment index remains in expansion mode. This suggests that demand for labor in the service sector continues to outpace supply, indicating overall strength in the labor market.
• Input price pressures facing businesses rose slightly in February but have remained relatively stable at levels above pre-pandemic levels over the past six months. This indicates ongoing cost pressures for service sector businesses.
• Labor shortages and supply chain disruptions continue to pose significant challenges, preventing a significant reduction in business cost pressures. These factors may continue to impact the service sector in the near term.

Overall, the final Services PMI report paints a picture of improving business activity and growing demand for services, despite ongoing challenges such as labor shortages and supply chain disruptions.

AUD/USD Live Chart