The Australian dollar has eased to a two-week low as traders unwound their positions in the US currency ahead of a Federal Reserve policy meeting in which the central bank is expected to maintain its stimulus program.
The dollar slipped below US95¢ late on Tuesday as the US dollar rose against a range of currencies. It was buying US95.75¢ but started to slide after Chinese money markets tightened and Reserve Bank governor Glenn Stevens jawboned about a "materially lower" currency. It was trading at US94.95¢ in late trade.
The fall in the dollar came as the benchmark S&P/ASX 200 index closed 15.4 points higher at 5430.9 points, with investors remaining cautious before the Fed meeting. The broader All Ordinaries rose by 14.7 points to 5425.4.
The Federal Open Market Committee (FOMC) meeting was usually seen as a source of volatility in the market, Westpac senior currency strategist Sean Callow said, adding that short-term traders appeared to be reducing their exposure.
The move by investors triggered a rise in the US dollar against currencies such as the euro, sterling pound, Canadian and New Zealand dollars.
"It's probably just safer to square up your books a little bit, go into [the FOMC] meeting neutral, wait for the market to absorb it and then put your positions on again," Mr Callow said.
"Do [I] see any fundamental reasons to be buying US dollars right now? The economic data did not support that," Mr Callow added, pointing to a decline in US retail sales and consumer confidence figures released on Wednesday.
"I think the short answer is no ... There's been no positive economic news. There's no expectation that the Fed will surprise on the hawkish side."
US consumer sentiment sank during the government shutdown and debt ceiling battle in Washington, plunging from 80.2 in September to 71.2 this month, data released on Wednesday showed.
US retail sales also came in weaker than expected, falling 0.1 per cent in September. The latest figures reaffirmed market expectations that the Fed was unlikely to wind down its $US85billion-a-month ($89.5billion-a-month) bond-buying program in the near-term.
Analysts predicted the central bank would push back any possible tapering of its program until March next year.
Financial markets also expect the Fed to delay considering a hike in interest rates to the middle of 2015. The Fed surprised markets last month when it decided not to start trimming its monthly bond purchases, citing the need for signs of a sustained recovery in the US economy.
Joseph Carson, chief economist with fund manager AllianceBernstein, said while the Fed was unlikely to make a move on Thursday, it should start providing forward guidance on when a tapering might occur.
"We believe that the huge scale of the Fed's balance sheet threatens to reduce the Fed's flexibility in the future," Mr Carson said.
"As a result, we think that the time has come to plan for a gradual tapering of the asset purchase program ... in order to help financial markets ease into the transition."
The Australian dollar has also been weighed down by Chinese money market movements, National Australia Bank senior currency strategist Emma Lawson said.
"Chinese interest rates were set higher than expected despite the injection of liquidity into the market, and that causes concern within the region because it represents the tightening of policy in China," Ms Lawson said of the currency's slide on Tuesday.
"Market expectations have been that rates would be lower. So that continued the Australian dollar weakness."