Dollar up late as rate cut expectations fade THE dollar was higher today as investors continued to lower their expectations of further interest rate cuts in 2013. Futures markets were pricing in just 18 basis points of interest rate cuts, compared with 50 basis points at the start of the year. National Australia Bank said it now expects interest rates to be cut by another half a percentage point in the current easing cycle. It started the year expecting a full percentage point of reductions. Traders said the shift reflects the Reserve Bank of Australia's decision earlier this month to leave its cash rate target at 3 per cent and signal that while it has scope to cut further, it will only do so if the economy weakens. Recent economic data showed stronger retail sales, solid economic growth in the fourth quarter of 2012, rising house prices and robust business investment plans. "The Australian dollar's rally is consistent with the improved risk backdrop and paring back of RBA rate cut expectations," said Sue Trinh, currency strategist at RBC Capital Markets. At 4.40pm AEDT, the Aussie fetched $US1.0282 compared with $US1.0224 late yesterday. The NAB business survey released today showed some deterioration in business conditions and confidence in February, but also reported hopeful signs of recovery in non-mining parts of the economy. "While conditions remain difficult for many industries, especially construction and manufacturing, there are signs that consumers may have become less cautious in response to recent improvements in equity and housing markets," said Alan Oster, chief economist at NAB. Paul Bloxham, chief economist at HSBC, Australia, added that three-year bond yields have also risen back above the official cash rate for the first time in 20 months, illustrating the changing mindset of traders. "The sell-off in the bond market reflects both improving international conditions and that Australian monetary policy appears to be getting traction," he said. We remain of the view that the soft patch in the Australian economy is probably behind us and expect growth to pick up in the first half of this year. Mr Bloxham is forecasting the next move in interest rates will be an increase in the fourth quarter of 2013. The release of February employment data on Thursday could see expectations of further interest rate cuts removed entirely, said David Scutt, currency trader at Arab Bank. "The debate could well be settled if we get a punchy employment report on Thursday," he said.