Dollar weakens after RBA signals rate cuts

THE dollar is weaker as traders buy the greenback on the small chance the US Fed will wind back its stimulus measures.

Dollar weakens after RBA signals rate cuts

THE Australian dollar has weakened after the Reserve Bank hinted a sluggish non-mining sector may prompt more rate cuts.

At 12pm AEST today, the Australian dollar was trading at 95.27 US cents, down from 96.21 cents yesterday.

The currency fell a quarter of a US cent to 95.18 US cents 10 minutes after details of the Reserve Bank's June meeting were released, suggesting the mining investment boom would plateau in the next 12 months.

The minutes noted that business conditions were still subdued in the non-mining sector as economic growth remained below trend.

ANZ foreign exchange strategist Andrew Salter said the immediate fall in the Australian dollar suggested another interest rate cut was more likely before the December quarter.

"While it may be in the fourth quarter, this statement suggests the risk is probably earlier," he said.

"Traditionally, the exchange rate has reflected lower interest rates."

"Because policy is being very closely tied, at the moment, to the exchange rate and its depreciation, we're getting an even closer correlation than normal."

Global currency markets are continuing to hedge their positions on the US Federal Reserve's quarterly Federal Open Market Committee meeting, which is due to announce on Thursday morning, Australian time, a position on stimulus spending.

US Fed chairman Ben Bernanke is tipped to provide direction on whether policymakers will continue with a monthly $US85 billion bond buying program, known as quantitative easing.

Meanwhile, Australian bonds were weaker at noon.

At 12pm AEST today, the September 10-year bond futures contract was trading at 96.575 (implying a yield of 3.425 per cent), down from 96.595 (3.405 per cent) yesterday.

The September three-year bond futures contract was at 97.430 (2.570 per cent), down from 97.435 (2.565 per cent).

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