The Australian dollar trimmed some of its hefty gains on Thursday, after overnight surging to a two-week high against a US dollar spooked by cautious talk from the Federal Reserve.
The local currency jumped almost 2¢ to US78.48¢ early on Thursday morning as the greenback shed strong recent gains in a dramatic sell-off against most major currencies.
The tumble came after the latest US Federal Reserve policy statement noted "economic growth has moderated somewhat", casting doubt on market expectations that the Fed could lift near-zero US interest rates as early as June.
"There was an unholy scramble for the exit on long US-dollar positions," National Australia Bank foreign exchange strategist Ray Attrill said.
The Fed statement released overnight on Wednesday no longer referred to a "patient" return to more-normal monetary settings. But chairwoman Janet Yellen said a rate rise would come only with improved jobs data and higher inflation.
"The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term," the Fed said in its statement.
Mr Attrill said the new US outlook would increase the chance of a Reserve Bank of Australia interest rate cut in April or May but only "at the margin".
"It would lead the RBA to think, 'The currency is still higher than we would like, the Fed hasn't done us any favours, we might be more inclined to get on with the job'."
The Australian dollar has now returned to its position before the RBA's February cut from 2.5 per cent to 2.25 per cent.
Rochford Capital director Derek Mumford said the Aussie benefited not only from the US plunge but a shortage of Australian dollars and seasonal demand for the local unit.
"There was a huge move out of US dollars into euro and yen, and the Australian dollar got on the coat tails of that," Mr Mumford said. "Overall, the trend is still very much down, with China slowing and raw-commodity prices still very weak."
The iron ore price hit a new six-year low overnight after a horror week, as dry metric tonnes fetched $US55.48 at the port of Qingdao in China.
Mr Mumford said he expected the Aussie to remain stable for a fortnight to a month before reaching the RBA's desired range of US70-73¢ by June or July.
He did not expect recent currency movement to exert extra pressure on the bank to cut rates.