Dollar drops after RBA holds on rates

THE Australian dollar was over one US cent weaker after the central bank decided to keep the cash rate on hold for at least another month.

THE Australian dollar was over one US cent weaker after the central bank decided to keep the cash rate on hold for at least another month.

At 5pm (AEST) today, the Australian dollar was trading at 108.90 US cents, down from 110.55 US cents yesterday.

Since 7am (AEST), the local unit moved between 108.87 US cents and 110.08 cents.

The Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at 4.75 per cent at its regular monthly board meeting today.

The decision was widely expected, with 12 out of 15 economists surveyed last week by AAP predicting the RBA would keep rates on hold.

The local unit was trading at 109.79 US cents prior to the RBA's decision and fell to 109.26 US cents shortly after.

RBC Capital Markets fixed income strategist Michael Turner said the market was looking for something a bit more hawkish from the RBA governor Glenn Stevens in his accompanying statement.

"I think there was a fair bit of speculation in the media that they were going to (hike) today,'' Mr Turner said.

"We don't think (the statement) was as dovish as the market interpreted, but the Aussie has sold-off pretty heavily off the back of that.''

Overnight, the US Senate votes on a compromise deal to raise the country's borrowing limit and enact at least $US2.1 trillion ($A1.92 trillion) in spending cuts over the next decade.

Tomorrow the Australian Bureau of Statistics releases retail trade data for June.

"You wonder if it's really going to be that meaningful, given what's happened offshore at the moment,'' Mr Turner said.

The local currency hit a post-float record high at 110.81 US cents on Wednesday last week, on a weakening US dollar.

The RBA's trade weighted index was at 78.1, down from Friday's close of 78.4.

The RBA was closed yesterday due to a bank holiday.