At 0700 AEST on Monday, the local currency was trading at 78.28 US cents, up from 77.89 cents on Friday.
China’s central bank says it will cut the level of funds that commercial banks must hold in reserve by one percentage point, the second such move this year to boost lending.
The Australian dollar rallied on the announcement, reaching 78.42 US cents, its highest level since March 26.
The news boosted the local and New Zealand currencies after Friday’s slump, when weak US economic data and concerns over Greece’s debt problems weighed on risk appetite and sent equity markets lower, National Australia Bank global co-head of FX strategy, Ray Attrill, said.
In a statement on its website, the People’s Bank of China said the cut would “further enhance the ability of financial institutions to support restructuring”.
The reduction in the reserve requirement ratio (RRR) – the amount of cash banks must keep on hand – follows a similar move in early February, which was the first across the board cut since May 2012.
“This is double the size of the last (February) cut and only the second time the RRR has been lowered by this amount in one fell swoop (the only other time being during the global financial crisis),” Attrill said.