The Australian dollar has fallen almost half a of one US cent as global markets reacted to China’s reduced growth target.

At 0700 AEDT the Australian dollar was trading at 106.69 US cents, down from 107.08 cents on Monday afternoon.

HiFX senior dealer Dan Bell said the currency’s fall mirrored a weak performance by European and US share markets.

“There’s been a risk-off sentiment overnight,” he said. “Equities are weaker across the US and Europe, commodities are down and the Aussie dollar has followed suit.”

The downturn in sentiment came after China announced a 2012 growth target of 7.5 per cent, well below last year’s 9.2 per cent expansion.

“I think that’s given everyone more of a fright than anything.”

Mr Bell said markets also were concerned about the effect of a recent spike in oil prices on the global economy. Oil is currently trading for around 107 US dollars a barrel.

“We know high oil prices will weigh on global sentiment. If you go back to this time last year it was a similar story. Oil prices spiked up and all of a sudden you saw the economy slow down.”

Mr Bell said markets would be closely watching the Reserve Bank of Australia’s (RBA) interest rate decision on Tuesday.

The RBA is widely expected to hold the cash rate at 4.25 per cent but Mr Bell said traders would be more interested in the central bank’s comments on the state of the economy.

“No one is really expecting the RBA to cut rates today. Obviously, the comments will be key as far as their next move. The market is still expecting them to cut rates again later this year.”