Australia's central bank plans to invest about 5 percent of foreign currency assets in China, Deputy Governor Philip Lowe said Wednesday.

The Reserve Bank of Australia's decision reflects its broader economic relationship with China and increasing financial ties, Lowe said in a speech to the Australian Chamber of Commerce in Shanghai.

"This decision by the RBA represents the first time that the RBA will have invested directly in a sovereign bond market of an Asian country other than Japan," said Lowe.

He noted that purchase of foreign assets in China will help to diversify Australia's investment. The China's central bank has approved an initial investment quota.

Further, he said a major share of Chinese investment in Australia has been foreign direct investment, and that largely in the resource sector. But recently there has been some diversification into the services and real estate sectors.

Lowe observed the behavior of financial institutions and the way markets function still raises question.

The quantitative easing that has taken place in a number of countries influenced the exchange rates of freely floated currencies and this is having ramifications for monetary policy in these economies, he added.

RTTNews