By FXEmpire.com

Australia, home of kangaroos and the outback, the last frontier, a land mass as large as the United States, rich in minerals and cultural diversity continues to deal with economic hardships.

The country had weathers the global financial crisis better than most, they did not have to pump up their banking system, unemployment increase but within tolerable limits, the housing market declined but not significantly, interest rates were lowered to stimulate growth but no to levels like in the US or the UK or the EU.

Just last week the Reserve Bank of Australia reduced its key lending rate from 4.25% to 3.75%.

The government has not had to jump in and save major businesses and their mining industry is on solid ground.

With strong political and economic leadership, the country looked like it would be able to navigate through the global economic disasters.

That is until recently. Australia is dependent on its neighbors in Asian for exports, income, and jobs. With the recent economic problems in Japan, beginning with the tsunami to more direct financial problems, Australia begun to lose a good portion of their exports and business, only due to the fact that as their neighbors suffer, they do also.

For their sake, their major trading partner China, has been able to weather the storm also, with continued growth and expansion, until recently, when China begin to show signs of a slowdown.

Although China will not have a hard landing and they will still maintain over 7% growth, this is well under the forecast, this reduction flows to their neighbors.

One cannot say that it was not expected, as China is the supplier to the world, when the eurozone is in the midst of a recession and the US is just beginning an economic recovery, their suppliers will see a drop in business. But in 2008 who knew this would still be going on in 2012.

Last week Glenn Stevens, Governor of the Reserve Bank of Australia announced a surprise rate cut of 50bps to help stimulate the economy.

The Reserve Bank of Australia has cut growth and inflation forecasts for 2012-2013, as weaker global conditions hit exports and restricted wage growth keeps prices in check.

But the central bank noted that outside of Europe, there are a number of indications that conditions have stabilized over recent months.

The RBA expects underlying inflation to be about 2.0 per cent for the year to the end of June, 0.25 percentage points lower than it forecast three months ago.

But the inflation outlook rests on the key assumption that labor costs will remain consistent with the forecasts.

This is particularly concerning to the RBA because, now that the Australian dollar has stopped rising, the deflationary effect in the prices of internationally tradable goods and services has also waned.

At the same time, non-tradable prices, driven by domestic economic conditions, are still rising.

Europe’s sovereign debt crisis remained the biggest threat to global growth, although the situation had improved there in recent months, it said.

In the year to December 2013 the economy is expected to grow at a rate of between 2.5 and 3.5 per cent, compared to its previous forecast of 3.0-4.0 per cent.

In its statement, the RBA also confirmed that although Europe’s sovereign debt crisis remains the biggest risk to world economy, its interest rate cut on Tuesday was a response to slower economic activity in Australia.

Click here a current AUD/USD Chart.

Originally posted here