THE dollar drifted lower yesterday, hurt by weaker-than-expected retail sales and building construction data. The Reserve Bank's decision to keep interest rates unchanged did little to help the currency. At the close, the dollar was trading at US90.72c, down from Monday's close of US90.89c. Commonwealth Bank currency strategist Joseph Capurso said investors lost enthusiasm for the unit late in the trading day after the RBA announced its decision to hold the cash rate at 4.5 per cent. "London trade opened, they saw the RBA hasn't done anything, saw the accompanying statement wasn't bullish and it knocked the Aussie dollar down half a cent," Mr Capurso said. "Simple as that." While the RBA kept its cash rate target unchanged for the third straight month, bond traders forecast even more of the same in coming months, buying up both ends of the curve. The RBA decision came after data last week showed inflation in the second quarter rose by less than nearly all forecasters expected, with the next reading on inflation not set for three more months. In the short term, Australia's commodity-rich economy appears to have inflation under control and growth humming along. Sally Auld, a JPMorgan interest rate strategist, described it as a "Goldilocks economy". This relative strength has been particularly helpful in the past week for the Australian dollar, which has pushed back near its highest level in three months this week. While data on retail sales and building construction were disappointing and pushed the currency lower, it remains broadly resilient and only slightly off its week highs on the heels of weakening perceptions about the US. Jim Vrondas, senior foreign exchange manager for OzForex, said the US dollar weakness against the Australian dollar would continue this week until US payrolls data comes out on Friday. "On the face of it, the US appears to be in a slowing cycle. The US dollar is back to being used as funding currency into higher yielding currency," said Mr Vrondas, who tipped US92.5c as a solid resistance level for the Australian dollar. With the RBA statement now in the rear-view mirror, JPMorgan's Ms Auld said bonds were likely to be range-bound in the near term. "This was a really bland statement with nothing really to push the market one way or the other. Offshore data will largely dictate where we go from here," she said. The September three-year spot contract yesterday gained four ticks to 95.36, while 10-year bonds rose seven ticks to 94.845. Ms Auld pinpointed a broad range of 95.15 to 95.50 for three-year bonds, forecasting a move up into the 95.40s in the near term. However, she said she would sell any gains into that area for a move back to 95.15 to 95.20.

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