Dollar falls half a US cent on rate cut

THE Australian dollar is almost one US cent lower after the central bank surprised markets with a 50 basis point interest rate cut.

THE Australian dollar is almost one US cent lower after the central bank surprised markets with a 50 basis point interest rate cut.

At 1700 AEST today, the currency was trading at 103.24 US cents, down from 104.58 cents at Monday's close.

Since 0700 AEST it has traded between 103.18 US cents and 104.29 cents.

Westpac chief currency strategist Robert Rennie said the Reserve Bank of Australia (RBA) surprised markets but cutting the cash rate by 50 basis points to 3.75 per cent, causing the Australian dollar to fall.

Economists had been expecting a 25 basis point cut.

"Obviously that was a surprise to most in the market, though there were a number of people out there calling for a 50 basis point cut,'' he said.

Mr Rennie said the Australian dollar was likely to fall further during trading in New York and European overnight as markets continued to react to the interest rate cut.

He said the local currency faced a tough week as traders waited the results of US payroll data on Friday and French and Greek elections over the weekend.

"I think they are factors that are likely to weigh on risk currencies like the Australian dollar in the short term.''