THE Australian dollar rose one-third of a US cent after Australia's central bank decided to cut the cash rate.

The Reserve Bank of Australia cut the cash rate by 0.25 per cent to 3.5 per cent after its June board meeting today.

The cut follows a 0.5 per cent reduction in May, the largest cut since February 2009.

The local currency was trading at 97.52 US cents at 1429 AEST just before the decision was announced, and rose to 97.86 US cents by 1433 AEST.

The Australian dollar finished yesterday's local session at 96.65 US cents.

Earlier

At 1200 AEST today, the Australian dollar was trading at 97.65 US cents, up from 96.65 cents yesterday.

RBC currency strategist Michael Turner said weakness in the US dollar had supported the Australian currency's upward move.

``We've seen pretty similar action across most markets this morning,'' he said.

``Other currencies have been squeezing up against the US dollar.''

Market concern about rate cuts by central banks around the world was also reducing investors' appetite for risk, he said.

``We have quite a lot of central bank decisions this week, and there's growing chatter that these banks might pull something out of the bag,'' Mr Turner said.

The RBA is expected to cut the cash rate by 25 basis points, from 3.75 per cent, when it meets today.

Meanwhile, Australian bond futures prices were lower at noon.

At 1200 AEST, the June 10-year bond futures contract was trading at 97.180 (implying a yield of 2.820 per cent), down from 97.290 (2.710 per cent) yesterday.

The June three-year bond futures contract was at 97.890 (2.110 per cent), down from 98.030 (1.970 per cent).