AAP

The Australian dollar rose to its highest level in almost a week after the central bank decided not to cut its cash rate.

At 1700 AEDT on Tuesday, the local unit was trading at 102.44 US cents, up from 101.25 cents on Monday.

During the local session it peaked at 102.55 US cents, its highest level since Thursday.

The Reserve Bank of Australia on Tuesday (RBA) kept its cash rate unchanged at three per cent, saying the four cuts it made in 2012 were having a positive effect on the local economy.

Forex.com research analyst Chris Tedder noted that the RBA said the inflation outlook gave it the scope to cut the cash rate further if necessary.

“The Australian dollar pushed higher post-decision as there was some lingering concern before the decision that the bank would cut interest rates,” he said.

“Also, the statement accompanying the rates announcement was fairly unchanged from its sister statement a month ago.

“In other words, the bank doesn’t appear to be leaning towards cutting interest rates anytime soon.”

On Wednesday, official economic growth figures will be released, with gross domestic product expected to grow by 0.7 per cent for the December quarter and 3.1 per cent for the year to December.

At 1700 AEDT, the Australian dollar was at 95.30 Japanese yen, up from Monday’s close of 94.63 yen, and at 78.53 euro cents, up from 77.80 euro cents.

Meanwhile, Australian bond futures prices fell after the release of better than expected local economic data and the on-hold rate decision by the central bank.

At 1630 AEDT on Tuesday, the March 10-year bond futures contract was trading at 96.700 (implying a yield of 3.300 per cent), down from 96.750 (3.250 per cent) on Monday.

The March three-year bond futures contract was at 97.230 (2.770 per cent), down from 97.310 (2.690 per cent).

Retail spending data, also released on Tuesday, showed a rise of 0.9 per cent in January, beating market expectations of a 0.4 per cent increase.

ANZ head of interest rate research Tony Morriss said those two factors, as well as expectations that Wednesday’s economic growth figures for the December quarter would be quite strong, encouraged investors to move from safe-haven assets.

“There was also a high level of comfort on the current monetary policy settings,” he said.

“The market is pricing out the expectation for the RBA.”

With a better economic outlook, Mr Morriss said shorter-dated bond prices were now likely to fall.