Australians shorten as many words as they possibly can. In my youth, a standup comedian on Just for Laughs once suggested that Canadians talk more and do it quickly to get warm. Maybe Aussies talk less to keep cool? In any event, short words like arvo are useful. I catch myself writing it in texts to Canadian friends, only realizing moments later that I have to delete it and actually write out “afternoon” because they will not know what I mean.
I’m not sure how the V sound is supposed to relate phonetically to afternoon, but I suppose that F and V are similar enough for one to make the logical jump. I definitely had to ask about this diminuitive, but Aussies are so intuitive towards each other with the way they shorten things, I doubt that anyone questioned the first person to use this word for the definition.