The dollar was sold off but shares continued their rally, writes Gareth Hutchens.
After stumbling slightly at the start of the week, Australian shares regained their momentum to close the week near a 22-month high.
The strong finish came as investors welcomed news that China had recorded better than expected trade data, fuelling optimism that its growth may be rebounding from its recent slowdown.
The S&P/ASX 200 index gained 50.3 points, or 1 per cent, at 4971.3 points for the week, while the All Ordinaries index rose 47.5 points, or 1 per cent, at 4989.4.
The Reserve Bank decided to keep the official cash rate on hold this week, at 3 per cent.
But it said in a statement accompanying the decision that it had scope to cut rates if necessary. Then the RBA's Statement on Monetary Policy, released on Friday, showed that it had revised down its expectations for economic growth for the coming year and that it had revised up its outlook for unemployment growth.
The statement - which opened the door for interest rate cuts - saw the Australian dollar fall to its lowest level in more than three months.
On Friday the currency slipped briefly to US102.56¢, its weakest level since October 24, before recovering to close on US102.98¢.
Economists said that the statement - which highlighted subdued inflation, a weak employment outlook and expectations of below trend growth - suggested that another rate cut was on the cards.
"The RBA has hinted it is open to another easing," St George economist Janu Chan said. "By the RBA's next meeting on March 5, we will receive a range of indicators that will help shape economic forecasts for the December quarter, including capital expenditure. If the run of data disappoints from now then there is a risk that the RBA will cut in March."
For shares on Friday, Arrium rose 3.5¢ to 100.5¢, despite taking a write-down of almost $500 million on the value of its steel division which analysts said reflected its lack of value amid a high Australian dollar and weak construction markets.
Australand Property Group fell 2¢ to $3.40, after downplaying the prospect of a successful takeover bid, after a 28 per cent jump in profits.
Blackham Resource rose 1¢ to 22.5¢, after the junior gold explorer appointed Joseph Gutnick as its chairman and announced a $13 million funding deal.
BHP Billiton rose 30¢, at $37.95, after the miner told workers at its Olympic Dam project about further planned job losses as the company seeks to slash costs.
Fortescue Metals rose 7¢ to $4.94, after it agreed to stop work on Iron Ore Holding's Iron Valley deposit in Western Australia.
National Australian Bank rose 39¢ to $29.02, after it said its priority this year was to cut costs, even if it is on track to post a record $6 billion full-year cash profit.
News Corporation rose 83¢ to $27.43, even as the future of its Australian newspapers looked more uncertain as the company partly blamed them for an earnings downgrade and said how excited it was to be spinning them off.
Telstra fell 2¢ to $4.62 after it said it was confident of achieving its full-year growth targets after more than 600,000 new mobile customers signed on in the first half.
Virgin Australia fell 0.5¢, at 43¢. The competition watchdog has flagged that it has some concerns about Virgin Australia's $35 million plan to buy a major stake in Tiger Airways.