The Reserve Bank of Australia is expected to lower interest rates by 50 basis points to 6.50% at 11:30 p.m. EDT.

The Australian dollar is down 0.0720, or 9.28%, to 0.7021 against the U.S. dollar, and lower by 11.000, or 13.4%, to 70.475 against the Japanese yen. This is the lowest level against the greenback since September 2004 and lowest reading against the yen since April 2003.

"This is basically liquidation ¥ Everything is tied in to the markets being in the shape they're in," said Peter Wadkins, senior foreign exchange analyst at IFR. "This is the Japanese investors taking their chips off the table and going home. Japanese and U.S. investors are the biggest overseas investors and they're bringing their money home."

The bulk of the decline came at 10 a.m. EDT, when most Australians were asleep.

The sharp decline in the currency could have implications for the central bank decision, Wadkins said. The Australian dollar traded near parity with the USD in July and has fallen 28.6%. The decline will put upward pressure on import prices and could fuel inflation.

"From an inflation standpoint, it's not inconsequential," Wadkins said.

Nonetheless, a rate cut is widely expected. All 21 economists surveyed by Bloomberg are calling for a rate cut, with 16 expecting a half-point decline. Overnight index swaps are pricing in a 92% likelihood of a 50 basis point cut.

The Australian dollar has fallen sharply for three reasons, according to Wadkins: declines in commodity prices, a slowdown in Asia and expectations for lower rates.

From an inflation standpoint, it's not inconsequential. Australia was suffering in its current accounts and was bringing in more and more cheap imports. With domestic growth slowing, the Aussie dollar is suffering on all fronts.

Wadkins said the key level to watch is 70 cents.

"Technically, it's heavily oversold. It feels like it's going to be tough to break through 0.70 but these markets are crazy, no one knows," he said.

The euro was up 0.1393 to 1.9187 against the Australian dollar. The Canadian dollar was up 0.0943 to 1.2877 against the Australian dollar.

The Australian dollar was down 0.0376 to 1.1319 against the New Zealand dollar.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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