(eToro Blog) The Australian dollar moved to a new 29-year high on Friday as the dollar continued to slump against most major currencies. The combination of stronger than expected inflation data during the week from Australia, combined with a dovish outlook from the FOMC has continued to drive investors into high yielding currencies.

During the last week Australia reported first quarter CPI figures which reinforced RBA rate hike expectations. Australian Q1 headline inflation rose 1.6%QoQ, against 1.2% expected, lifting the 12-month rate up to a 2-year high of 3.3%.

FOMC confirmed their dovish stance last week in the Federal Reserve press conference. In the first even question and answer press conference Ben Bernanke continued to maintain an ultra-easy monetary policy, and assure investors that rates in the US will remain low for an extended period of time. When asked about the timing of a potential rate change, the Chairman stated that it would be several meetings.

The AUD/USD also gained ground after the US released sluggish first quarter 2011 Gross Domestic Product. US Q1 GDP growth rose 1.8%, slightly below consensus, but excluding inventories, real final domestic sales fell to just 0.9%, down from 3.2% in Q4 and a 2010 quarterly average of 2.9%. Excluding the effect of an outsized 11.7% drop in government defense spending, which resulted in an -1.1% drag from the public sector on overall GDP growth, the pace of real domestic activity still halved to 1.6% in Q1 against 3.3% in the fourth quarter.

The AUD/USD continues to gain momentum and is targeting trend line channel resistance near 1.1170. The RSI (relative strength index), has broken out with price, showing positive momentum near the 77 level. Support on the currency pair is seen near the 20-day moving average near 1.06.

Copyright 2011 eToro Blog

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