Dollar plummets as $US improves

The Australian dollar opened almost two US cents lower on Wednesday as the US dollar got a boost because of improved market sentiment about the global economy.

At 7am eastern daylight time, the Australian dollar was trading at 96.83 US cents, lower than yesterday's close of 98.49 US cents. It was also buying 78.96 yen, 70.48 euro cents and 61.63 pence.

Since 5pm, the local unit traded between 96.62 US cents and 99.03 cents.

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Westpac New Zealand senior market strategist Imre Speizer said there was a big swing in market confidence that caused the US dollar to move up from its record lows, causing a fall in the Australian unit.

"Sentiment was stretched to record levels in terms of the percentage of market participants that were bullish on things like the US dollar," Mr Speizer said.

"Things like that tell you that (market) participants were on the same side of the ship in being long on risk and when you get to those record levels it's usually fertile ground for a fairly vicious reversal, which we saw a glimpse of last night.

"There were a whole bunch of catalysts that you could attribute it to," Mr Speizer said from Wellington.

Two these factors include the Chinese central back tightening interest rates and comments by two US Federal Reserve officials expressing scepticism about the need for stimulus for the US economy.

"That may have caused people to think that a massive quantitative easing on November 3 is not necessarily a done deal.

"There is quite a bit of debate on this rather than a one sided discussion," he said.

China raised its key interest rate by 0.25 per cent on Tuesday for the first time since the global financial crisis in a move intended to control inflation and guide growth to a more sustainable levels.

On Thursday, China releases a number of economic data, including inflation, GDP and industrial production and on Wednesday night the US will release its Beige Book economic report.

Mr Speizer said more US Federal Reserve officials will be speaking this week, which will give market observers guidance on where the Fed will go on quantitative easing.

He predicted the Australian dollar would trade between 95.1 US cents and 98.5 cents on today.

AAP

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