The Australian dollar is up against the US dollar on Thursday after Australian interest rates were cut to a record low while the US Federal Reserve started a new lending facility aimed at mutual funds that are facing large redemptions amid the turmoil in financial markets.
AUD/USD was higher by 49 pips (+0.85%) to 0.5751 with a daily range of 0.5511 to 0.5963 as of 5pm GMT. The currency pair pulled itself off 17-year lows but stalled at 0.59 before turning lower.
Australian dollar rebounds from 17-year lows
In a well-signposted decision, the Reserve Bank of Australia (RBA) cut interest rates by 0.25% on Thursday at a scheduled press conference with Governor Phillip Lowe. The move takes Australian rates to a new record low, when the last record low was set just a week ago.
Australian central bankers also agreed to begin the purchase of Australian bonds, something they had managed to avoid during the 2008 financial crisis. The program is targeting the yield on 3-year Australian government bonds rather than setting out a specific amount in purchases.
There was some disappointment at no outright QE like the Federal Reserve but its likely that could be coming soon.
Lowe said the RBA is not seeking to intervene in the currency market and appears content to let the Aussie dollar fall sharply as a “shock absorber”.
US dollar drops as US jobless claims spike
The trend of the last week of international capital exiting foreign currencies and buying dollars paused on Thursday. New swap lines opened from the Federal Reserve will help the dollar shortages being widely cited as a problem by foreign banks.
As the RBA was cutting rates, the Fed started a new facility designed to support US mutual funds from investor redemptions amid the heavy losses in share markets, The Money Market Mutual Fund Liquidity Facility.
Investors are watching some of the more up-to-date data including weekly US jobless claims which just jumped to 281,000 last week from 211,000 the previous week in a sign of layoffs amid the coronavirus pandemic.