As expected, the US Fed reserve raised the target for main short-term rate by 25 basis points to the range of 0.25 to 0.50 percent, from the erstwhile 0 to 0.25 percent. The hiked prime rate now makes a range of loans costly that include business as well as credit card loans. However, its impact on Australian dollar was nil and it was relatively unshaken and stayed at Wednesday’s level of US72.06 cents.

Acting on the Fed’s move, many US banks followed the suit. They included Wells Fargo & Co, JPMorgan Chase & Co and Bank of America Corp and raised prime rates to 3.5 percent from 3.25 percent, Reuters reported.

According to Brown Brothers Harriman currency strategist Marc Chandler, Fed chair Janet Yellen “must feel good about the limited market response” to the interest rate announcement. He noted that the assertion of 25-basis point rate hike as a tentative beginning to the "gradual" tightening cycle is most significant.

Aussie dollar impact

As mentioned, the Australian dollar was relatively unshaken by the US Fed rate hike as a result of the subdued market reaction to the US Fed’s first interest rate.

The muted response in the AU dollar is attributed to the tone of reassurance that further rate hikes will be “gradual” and will stay linked to the rate of inflation. The Australian dollar did fall as low as 71.77 US cents after the announcement, but quickly recovered the ground, reports Trading Room.

According to Westpac senior currency strategist Sean Callow, the Australian dollar became stable as market attention turned to the Fed's statement that any further rate hikes would be "gradual."

In the latest update at 1200 AEDT on Thursday, the currency was trading at 72.06 US cents, unchanged from Wednesday's close.

Key Movements

One Australian dollar buys:

-72.06 US cents, as in Wednesday's local close

-66.25 euro cents, from 65.85 euro cents

-106.55 New Zeland cents, from 106.56 NZ cents

-48.09 British pence, from 47.89 pence

Markets up

Meanwhile, US stocks rallied on Wednesday after the Federal Reserve raised key policy rate as a mark of confidence in the US economy, updates a Reuters report.

“Wrapped in dovish language, the Federal Reserve has just embarked on what will be the loosest tightening in its history," commented Mohamed El-Erian, chief economic advisor at Allianz in Newport Beach, California.

A report in ABC noted that despite checking the main boxes of falling unemployment and gradually rising inflation, Janet is sending the message that she is very cautious in mixing optimism with risks and will watch out for shocks down the road.

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