/www.fxserver.com/ THE dollar has shed more than half a US cent as financial markets continue to react to the possibility Australian interest rates could be cut. At 1700 AEST the dollar was at $US0.6583/88 from Friday's close of 0.6645/49. However, the local currency has rallied back after sustaining early downward pressure on weekend reports that talked up the chances of Reserve Bank easings. It strengthened from the offshore low of $US0.6535 to trade a 0.6560 to 0.6586 range today. MMS International strategist Glen Bull said once the market factored in the notion that interest rate differentials might not narrow substantially even if the RBA cut the dollar should start moving up again. He said the market was now giving its undivided attention to whether the US Federal Reserve would ease rates after its meeting on June 25. If it does, and the RBA follows suit on July 1, it could simply keep the interest rate differential the same. Australia's cash rate of 4.75 per cent reflects a 3.5 per cent premium to the US Federal Reserve's funds rate of 1.25 per cent. "The market is just watching for the US lead and that means the aussie will be extra quiet in our zone," Mr Bull said. "And if the US cuts first the differential may only be back to what it was." He said the dollar was still in an upward trend. "The market is heavy because of increased interest rate cut talk but once it digests that we should head up again," Mr Bull said. At 1600 AEST the Reserve Bank of Australia Trade Weighted Index was at 58.2 points from 58.8 at Friday's close.