Dollar lifts sharply above US75c

The local unit has bounced close to US75.5c in late trade, as investors digested Federal Reserve comments.

The Australian dollar has bounced back above US75 cents as the US Federal Reserve did little to alter expectations of a December rate hike, and the chances of a Reserve Bank rate cut next week remained steady.

At 5.40pm (AEST), the local currency was trading at US75.47c, up from US cents at 1700 AEST, up from US74.92c cents on Wednesday.

The Australian dollar improved against the US dollar after the Fed left rates on hold at its latest meeting, and issued a more upbeat assessment of the world’s largest economy.

IG market analyst Chris Weston said that assessment of the US economy largely met expectations, and markets still expect a rate hike to come in December, rather than September.

“While a number of investment banks have increased their internal probability models for a September hike, the interest rate markets have gone the other way and priced out the prospect,” he said.

“The Fed are not raising anytime soon in my opinion and the pessimistic market participants have been right all along.”

The Australian dollar had fallen below 75 US cents on Wednesday after weak inflation data appeared to strengthen the case for the Reserve Bank to cut the cash rate for the second time in 2016 next week.

But Mr Weston said expectations of a cut among financial markets had not changed since the release of the inflation data, remaining at a 55 per cent chance.

AAP