THE dollar was lower at noon as the first step of the US central bank unwinding its stimulus to combat the economic downturn gave a boost to the American currency.
At 12:00 (AEDT), the dollar was trading at $US0.8932/36, down 0.27 per cent from yesterday's close of $US0.8957/59.
Since 07:00 (AEDT), the local unit has traded between $US0.8887 and $US0.9026.
The US Federal Reserve said the interest rate it charges on emergency loans to banks will rise in a move to normalise lending after radical measures to lift the American economy from recession.
The US central bank said the hike in the discount rate, or the primary credit rate, to 0.75 per cent from 0.5 per cent would be effective on Friday.
In a statement, the Federal Reserve board said that "in light of continued improvement in financial market conditions, it had unanimously approved several modifications to the terms of its discount window lending programs''.
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Senior corporate dealer with online currency trader Easy Forex, Francisco Solar, said the announcement by the Federal Reserve after trade had finished on Wall Street raised expectations of rate rises by the US central bank later this year.
"That the Fed increased its discount rate gave a lot of strength to the US dollar across the board against all currencies,'' Mr Solar said.
"The timing was peculiar and it took markets by surprise.''
Mr Solar said futures markets had started to raise the likelihood of the Federal Reserve lifting its benchmark rate in 2010.
The US federal funds rate is in a target range of zero of 0.25 per cent.
"That is giving a lot of support to the US dollar this morning,'' he said.
The local currency had started the domestic session firmer following a strong performance on equity markets in offshore trade.
The Dow Jones Industrial Average closed up 0.81 per cent.
Mr Solar said the appearance of Reserve Bank Governor Glenn Stevens before a House of Representatives Economics Committee hearing in Canberra had minimal impact on the local currency.
For the rest of the Asian session, Mr Solar forecast the dollar to trade between $US0.8887 and $US0.9026.
Price drop means low interest ratesDollar lower at noon, bonds firmer
