The Australian dollar fell against all of its most traded counterparts after the Reserve Bank of Australia announced its decision today to lower its benchmark interest rate for the second straight month.
The RBA cut the key cash rate by 25 basis points to 4.25 percent, citing reasons of a global slowdown in growth due to the euro zone debt crisis.
The central bank’s move signals a lack of confidence in the ability of euro-zone policy makers to extract the region from its sovereign-debt crisis.
“Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe,” RBA Governor Glenn Stevens said in a statement accompanying the decision. “This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased.”
Further adding to the RBA’s concerns was the reduction of China’s banks’ reserve requirements last week, signalling growth concerns in the world’s second largest economy. China is Australia’s biggest trading partner and any economic slowdown there will affect Australia’s exports.
Meanwhile, Indonesia, Thailand and Singapore have also eased policy in recent weeks. Asia is the destination for 70% of Australia’s exports.
“The likelihood of a further material slowing in global growth has increased,” RBA Governor Glenn Stevens said in a statement. “China’s growth has been slowing, as policy makers there had intended. Trade in Asia is now, however, seeing some effects of a significant slowing in economic activity in Europe.”
The Australian dollar has dropped 0.7 percent against the US dollar after the news to 1.0168 from 1.0240 before the announcement.