Dollar firms as RBA signal rate cuts

THE Australian dollar is firmer despite the Reserve Bank indicating another interest rate cut may be on the agenda.

Dollar firms as RBA signals rate cuts

THE Australian dollar is firmer despite the Reserve Bank indicating another interest rate cut may be on the agenda.

At 12pm AEST today, the local unit was trading at 91.68 US cents, up from 90.87 cents yesterday.

During late morning trade, the currency rocketed from 91.09 to 91.48 US cents within two minutes, after the Reserve Bank of Australia (RBA) released the minutes of its July board meeting, indicating there was "scope for further easing".

While the prospect of further rate cuts usually weighs on the Australian dollar, Commonwealth Bank chief currency strategist Richard Grace said traders bought the currency, after concluding the RBA had said nothing new.

"Perhaps it is a case that there was not significant new information in the minutes, but I think there was enough information to indicate that the RBA ... could cut again," he said.

Traders are also regarding the Australian dollar as an over-sold currency.

"The Australian dollar has come down a long way and the market is generally short, so they're squaring up short positions," Mr Grace said.

In its minutes, the central bank said the inflation outlook, although slightly higher because of the weaker Australian dollar, "could still provide some scope for further easing should that be required to support demand".

The Australian dollar is expected to trade within a tight range ahead of US data on inflation and June industrial production, which is due out tonight.

Meanwhile, Australian bonds were weaker at noon.

At 12pm AEST, the September 10-year bond futures contract was trading at 96.255 (implying a yield of 3.745 per cent), down from 96.270 (3.730) yesterday.

The September three-year bond futures contract was at 97.290 (2.710 per cent), down from 97.320 (2.680 per cent).