The Australian dollar was back around US71¢ on Thursday after the US Federal Reserve failed to reassure markets that it was on track to deliver as many as four interest rate rises this year.
In late local trade, the Aussie was buying US70.87¢, compared with US70.57¢ at the same time on Wednesday.
The local unit traded as high as US71.53¢ during the day after another sudden dive by the greenback against the Japanese yen, which has proved a popular safe-haven bet during recent market unease.
Japan's currency is stronger now than it was immediately before the BoJ's shock announcement in late January that it was moving official rates below zero.
This is mainly because the country runs a huge current account surplus, making it less reliant on foreign savings and investment and less vulnerable to capital flight during global market tension.
"When risk aversion dominates, countries that are not reliant on international funding will find their currencies appreciating," CBA currency strategist Richard Grace wrote this week.Overnight, the Aussie had peaked at US71.29¢ ahead of a vital congressional testimony by Federal Reserve chief Janet Yellen.
It eased slightly when she refused to rule out another interest rate increase in March, following the first in almost a decade in December, but steadied as market pundits digested the broader message of her presentation. The greenback's rise against other key currencies such as the euro was more sustained.
Fed retreat
BK Asset Management's head of foreign exchange strategy Kathy Lien said the Fed's Open Market Committee had clearly retreated from its December position, when members mapped out up to four further 25 basis point increases in short-term interest rates.
This so-called "dot point" plotting, when members illustrate where they expect interest rates to be throughout the year, is closely watched by investors, traders and analysts.
"According to her testimony, the central bank is no longer looking to raise rates three to four more times this year, like the December dot plot suggests, because we're now looking at only one and at best two rate hikes in 2016," Ms Lien said.
At the same time, however, Ms Yellen had reminded US politicians that the labour market remained strong, and built-up wage pressures would ultimately fuel much-needed inflation as incomes and spending rose.
"With that in mind, Yellen hasn't completely given up on the idea of raising rates in March," said Ms Lien.
Most commentators agreed, although they noted Ms Yellen's concern at current global market unease, the strong greenback, higher corporate credit costs and low commodity prices.
"If we had to try and summarise the best part of three hours of testimony before Congress by Fed chair Janet Yellen in one sentence, it would be something like 'Janet fails to go full dove'," said National Australia Bank's global co-head of foreign exchange strategy Ray Attrill.
"We'd sum Yellen up . . . as implying that the bar to a next rate rise as early as March is very high, but that the Fed is still being careful not to rule anything out beyond that," he said.
Nomura's rate strategist for Australia Andrew Ticehurst said a Fed rate increaser in March "seems unlikely".
"We continue to expect a move in June," he said.
"The bottom line is that Yellen noted that a lot of things have happened since the committee raised rates in December.
"Those factors, if they persist, are likely to have a significant impact on the outlook," he said.
