The Australian dollar drifted lower yesterday in a quiet Asia session, knocked by a firmer US dollar and news that the International Monetary Fund was planning further sales of its gold reserves. Interest rate futures weakened a touch but lacked firm direction as the market awaited all-important semi-annual parliamentary testimony by Reserve Bank of Australia governor Glenn Stevens today. Matthew Johnson, an interest rate strategist at UBS, said the danger for markets was that the RBA governor would be more dovish in his outlook than some expected, which could spur some bond buying. "The greatest risk to market pricing right now is the RBA sounds more relaxed than the market thinks it will," he said, as dealers had already priced in a hawkish tone from the bank. "They've told us the general direction to rates is up," he said, adding rates trading was very thin yesterday because of lunar new year holidays. It was a similar outlook for the currency. ANZ strategist Amy Auster said trading was quiet, and chances were that Australian dollar trading would not get too excited about the RBA governor's testimony. "The RBA tightening path is pretty well priced in. If the market brings that forward to March or April you might see a bit of a bounce but it would have to be a pretty strong signal," she said, noting a 40 per cent chance of a March hike was the latest market bet. Of note were gains in the US dollar overnight, despite stocks also pushing higher, Ms Auster said. "The US dollar rallying at the same time is a harbinger of important change in the forex market," she said. The Australian dollar closed at at US89.5c, down from US90.12 on Wednesday. Against the Japanese yen, the Australian dollar was at Y=81.43, flat from Y=81.42. Against the euro, the local unit held around decade highs at E0.6598.

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