AUD/USD retreats to 0.5800 area as DXY stretches higher

• RBA cut policy rate by 25 basis points to 0.25% on Thursday.
• US Dollar Index extends rally to fresh multi-year highs above 102.60.
• Fed establishes $60 billion swap line for Australia. 

The AUD/USD pair dropped to its lowest level in more than seven years at 0.5511 during the Asian trading hours on Thursday but staged a decisive rebound in the second half of the day. After rising all the way up to 0.5963, the pair lost its recovery momentum and retreated to 0.5800 area, where it was still up 0.5% on the day.

RBA cuts policy rate to 0.25%

Earlier in the day, the Reserve Bank of Australia (RBA) said that it lowered its policy rate by 25 basis points to 0.25%. Commenting on this decision, RBA Governor Lowe said that they will be maintaining the current setting of interest rates until they are convinced that there is a strong recovery in place.

“We expect a major hit to economic activity and incomes in Australia that will last for a number of months,” Lowe added. “We are also expecting significant job losses.”

On a positive note, the Unemployment Rate in Australia fell to 5.1% in February from 5.3% in January but this reading failed to help the AUD find demand.

In the second half of the day, the Federal Reserve announced that it established a temporary USD swap line in amounts up to $60 billion with Australia to help the pair gain traction.

Nevertheless, the impact of this announcement on the USD valuation was short-lived and the US Dollar Index (DXY) continued to push higher during the American session to force the pair to erase a large part of its losses. At the moment, the DXY is at its highest level since January 2017 at 102.67, up 1.75% on a daily basis.

Technical levels to watch for