While the developed economies of West have just began to recover from the global financial crisis, the emerging Asian countries are already struggling with elevated inflation. Following the measures conducted by Thailand and South Korea, China continues to curb the liquidity in order to cut the consumer price growth. The People’s Bank of China increased the reserve ratio requirements for the domestic banks by 50 basis points yesterday. It was the fourth time since November 2010.
The Australian dollar is vulnerable to such news coming out of China, as Australia relies heavily on the export of the commodities to China. Less liquidity will lead to less economic activity there, reducing the necessity for the global trade companies to buy the Australian currency. The unprecedented floods in the state of Queensland are also a negative factor for the AUD.
AUD/USD declined from 0.9987 to 0.9908 as of 19:28 GMT today. AUD/JPY fell from 82.65 to 82.19, while EUR/AUD rose from 1.3363 to 1.3484 during this trading session.
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