THE Australian dollar ended lower today after the US central bank began to reduce its monetary stimulus gave a boost to the American currency.
At5pm (AEDT), the dollar was trading at $US0.8900/05, down 0.61 per cent from yesterday's close of $US0.8957/59.
Between7am (AEDT) and the local close, the unit traded between $US0.8888 and $US0.9020.
The US Federal Reserve said the interest rate it charges on emergency loans to banks would rise in a move to normalise lending after radical measures to lift the American economy from recession.
It said the hike in the discount rate, or the primary credit rate, to 0.75 per cent from 0.50 per cent would be effective today.
In a statement, the Fed's 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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National Australia Bank head of currency strategy, John Kyriakopoulos, said the Australian dollar weakened after the US central bank announced its decision after the close on Wall Street.
"It has been under pressure for most of the day like most other currencies against the US dollar," Mr Kyriakopoulos said.
Financial markets had interpreted the move by the Federal Reserve as a pre-cursor to increases in the US federal funds rate later this year, Mr Kyriakopoulos said.
Expectations of rate rises lifts the attractiveness of a currency as investors seek to deposit funds that offer higher returns.
The US federal funds rate currently is in a target range of zero to 0.25 per cent.
However, comments by the president of St Louis Federal Reserve Bank, James Bullard, that the likelihood of a rate rise this year was unlikely helped stop the slide against the US dollar, Mr Kyriakopoulos said.
He said the appearance of Reserve Bank of Australia (RBA) governor Glenn Stevens before a parliamentary hearing in Canberra had little effect on the local currency.
"It ended up being a sideshow due to the US Fed's decision," he said.
"It did not give a clear idea about the RBA's moves on interest rates in March."
Economic data due in the US during Friday's offshore session include the consumer price index (CPI) for January.
Financial markets expect the US CPI to rise by 0.3 per cent in January after increasing by 0.1 per cent the previous month.
Mr Kyriakopoulos forecast the Australian dollar to trade between $US0.8840 and $US0.8950 during Friday's offshore session.
Dollar dips lower at noonPrice drop means low interest rates
