Australian dollar rises after trading partner China cuts RRR

The Australia dollar was one of the best performing major currencies at the start of the new trading week after it rallied in reaction to news that China cut the reserve requirement ratio (RRR). China is Australia’s major trading partner and the world’s second largest economy so the news that it is embarking on more stimulus measures was taken positively by the markets.

To stimulate more growth, the Chinese authorities cut the amount of cash that banks must hold as reserves so that they would have more money to be able to lend out more money. The country’s central bank – the People’s Bank of China – cut the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, effective from April 20. The size of the cut is more than expected.

This was the second rate cut in two months and the deepest single reduction since the depth of the global crisis in 2008. The increase in liquidity of around a trillion yuan would help spur the sluggish economy. The Chinese economy is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014.

AUD/USD opened with a gap higher at $0.7826 compared to Friday’s close at $0.7781.

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