$A rallies after RBA modifies tone

The Australian dollar hit an eight month high after the Reserve Bank surprised the market with a less pessimistic outlook on local economy.

At 1700 AEST on Tuesday, the local unit was trading at 94.58 US cents, up from 94.02 cents on Monday.

The RBA surprised no one by keeping the cash rate unchanged for an 11th month in a row after its July board meeting.

However, in its short statement the bank seemed less likely to cut the cash rate than it did after the June board meeting.

RBC Capital Markets head of economics Su-Lin Ong said it's very clear that the RBA's cash rate is on hold for the foreseeable future and with almost no chance of a rate cut in sight.

"The market was starting to think about rate cuts and price in a greater probability of that," she said.

"That has probably been pared back a little by today's statement and hence the currency is firmer and bonds are a little bit weaker."

The Australian dollar hit a high of 94.64 US cents after the RBA's statement was released, its highest level since early November.

The next key local data will be the release of official May retail spending figures and building approvals data, both out on Thursday.

Investors will be looking to see what impact a fall in consumer confidence has had.

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