The Reserve Bank of Australia announced today that it cut its benchmark interest rates by 25 basis points to 4.5 percent. This is the first easing in two-and-a-half years and investors are expecting on more cuts as the central banks seems more pessimistic on global growth and is more relaxed to inflationary pressures.
The news led the Australian dollar lower against most of its counterparts. AUDUSD fell to 1.0431 in the Asia session from the open of 1.0540. The pair is currently trading even lower at 1.0408 in the Europe open. The aussie also tumbled against the yen and the sterling.
The RBA said in a statement that it believes inflation in Australia was now likely to be more consistent with its long-term target in 2012 and 2013.
The last time the central bank cut rates was in April 2009 when it was easing sharply in response to the global financial crisis.
Also earlier in the Asia session, disappointing Chinese economic data also affected the aussie. China’s official purchasing managers’ index (PMI) reported a weaker-than-expected reading. The Aussie is sensitive to news from China, the biggest buyer of Australian commodities.