Australian dollar rises as Reserve Bank of Australia hints at rate rise

THE dollar reacted positively to the RBA news that a rate rise was likely in the near future, shooting up to 107.7 US cents

AT 12.57pm (AEST), prior to Mr Stevens' comments, the local unit was trading at 106.71 US cents. It shot to 107.07 US cents, shortly after his upbeat comments.

Mr Stevens said the RBA board's view at the last monetary policy meeting, earlier this month, was that a rate rise was not needed yet.

"New information will, as always, be important in our monthly assessments of what monetary policy needs to do," he said in a speech in Brisbane.

The local currency reached 110.11 US cents on May 3, a record high since it was floated in December 1983.

The RBA last increased the cash rate in November last year to 4.75 per cent and has kept it unchanged since, as it assesses whether the boost from the resources boom is outweighing the slowdown in much of the rest of the economy.

Most economists forecast a rate rise by the end of September, while the money market gives a less than 50 per cent chance of a rate increase by the end of the year.

Meanwhile, the Australian bond market weakened following Mr Stevens' comments.

At 13.10pm (AEST), the September three-year bond futures contract was trading at 95.095 (implying a yield of 4.905), down from 95.130 (4.870), where it was trading moments before the speech in Brisbane.

The September 10-year bond futures contract was also lower, falling from 94.765 (5.235) to 94.750 (5.250).