The Australian dollar has leapt more than 1 per cent on bets that the US Federal Reserve may slow the pace of future interest rate hikes.
The US central bank overnight lifted its key rate as expected and its policymakers projected three potential increases in 2018. While that was in line with their previous projections, some market watchers had anticipated the potential for a fourth rise.
The challenge for the Fed, which is keen to return rates to more normal levels, is that inflation continues to be weak.
"In spite of diminishing unemployment and well-anchored inflation expectations, actual inflation has continued to disappoint," said TD Economics' senior economist James Orlando. "This has not gone unnoticed" by member of the Federal Open Market Committee.
"As noted in recent FOMC minutes, several FOMC participants fall into the "I'll believe it when I see it" camp when it comes to inflation," Mr Orlando noted. "This includes the two dissenting voices at this meeting - Charles Evans and Neel Kashkari."
The Australian dollar was 1 per cent higher at US76.30?? at 7am AEDT. Less than a week ago, the currency appeared poised to slide below US75??.
Sentiment on the currency was favourable in the wake of the latest Westpac Melbourne Institute index of consumer sentiment, released Wednesday; the index rose 3.6 per cent to 103.3 in December from 99.7 in November.
