Australian stocks are higher as the market reacts to heightened expectations of an interest rate cut in August.

Reserve Bank of Australia Governor Glenn Stevens on Tuesday hinted the central bank cut could cut the cash rate to a record low of 2.5 per cent at its board meeting next week.

Mr Stevens said previous rate cuts were helping the economy, but not enough to prevent further cuts; a statement which saw the Australian dollar drop sharply.

CommSec market analyst Juliana Roadley said the futures market was now pricing in a 92 per cent chance of a rate cut, which was good news for stocks.

“I think everyone’s now looking at the implications of whether we do get an interest rate cut next week,” she said.

“That’s why you’ve got the banks doing well, the retailers doing well, and the healthcare centre and the telcos doing well.”

Among the big four banks, ANZ was 27 cents higher at $29.86, Commonwealth Bank had gained 61 cents to $74.64, NAB was up 23 cents at $31.24 and Westpac was 34.5 cents higher at $31.20.

Telstra was up 1.5 cents at $5.015.

But Ms Roadley said the resources sector, and particularly smaller miners, had been hurt by news a Russian Potash cartel would be broken up.

BHP was 18 cents lower at $34.77, while Rio Tinto had dropped three cents to $57.68.

KEY FACTS

* At 1025 AEST, the benchmark S&P/ASX200 index was up 35.7 points, or 0.71 per cent, at 5,082.9 points.

* The broader All Ordinaries index was up 35.1 points, or 0.7 per cent, at 5061.4 points.

* On the ASX 24, the September share price index futures contract was 31 points higher at 5038 points, with 8,401 contracts traded.

* National turnover was 289 million securities worth $522 million.