Aust dollar spikes in early trade

Local currency jumps after US Federal Reserve leaves stimulus program on hold.

The Australian dollar has soared more than one-and-a-half US cents after the United States Federal Reserve unexpectedly decided to leave its economic stimulus program in place.

At 0700 AEST, the local unit was trading at 95.18 US cents, up from 93.58 cents yesterday.

Fed policy makers were widely expected to announce the tapering of their $US85 billion-a-month bond-purchasing program this morning, Australian time.

They instead left it in place and cut their growth forecast for this year and next.

The Federal Open Market Committee said that although the US economy appeared to be holding up amid government "sequester" spending cuts, it "decided to await more evidence that progress will be sustained before adjusting the pace of its purchases".

Westpac chief currency strategist in New York Richard Franulovich said the decision saw the US dollar take a big hit across the board.

"Given it was so widely telegraphed and the Fed did nothing to disabuse the market of thinking it was going to taper in September, there's been a big reaction," Mr Franulovich said.

"The market has clearly tacked back towards pricing in a more dovish profile for Fed tapering and a potential rate hike from the central bank."

Mr Franulovich said Fed chairman Ben Bernanke appeared to have backtracked on the tapering blueprint he outlined in June.

"Clearly, Bernanke has gotten weak at the knees," Mr Franulovich said.

"When he was asked whether that blueprint was still operational, he seemed to walk it back saying: `Look, we could still start this year', but it was hardly an unequivocal comment.

"The bottom line for the Fed is that the spotty numbers in the last few weeks clearly have them doubting the progress of the economy.

"Even as far out as 2016, the Fed's forecasts still have the Fed funds rate at no higher than two per cent, which is a dramatically dovish profile."

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