The Australian dollar is higher despite the Reserve Bank of Australia cutting the cash rate to a an all-time low.

At 1700 AEST the local unit was trading at 89.81 US cents, up from 89.09 cents on Monday.

The RBA cut the cash rate from 2.75 per cent to 2.5 per cent on Tuesday, citing below average growth and moderating commodity prices.

Although the local currency would typically fall on such an announcement, the Australian dollar rallied because the rate cut was widely expected, LTG GoldRock director Andrew Barnett said.

The market was caught short on the Aussie dollar, with record numbers of traders having sold the local currency just before the announcement, expecting it to drop on the news of the rate cut, he said.

“Everyone would have expected the Aussie dollar to drop to the interest rate announcement today,” Mr Barnett said.

“But we’ve seen the Aussie dollar rally simply because it was a 100 per cent expected announcement.

“All of the small to mid-tier traders think the Aussie dollar is going to drop on the announcement but all the smart money and the big money has already been short on the Aussie dollar for the last few weeks and they’re just simply looking for an opportunity to buy it back up.

“The average punter thinks it’s going down, the smart money knows it’s already priced in.

“There would be a hell of a lot of small to medium sized traders right now licking their wounds big time.”