The Australian dollar crawled higher on Thursday, trying to recoup losses after the US Federal Reserve said a pullback in inflation was temporary and there was no need for lower interest rates.
The Aussie dollar nudged up to 70.26 US cents, having slipped 0.5 per cent overnight to as low as 70.07 US cents.
The US central bank's steady outlook stood in stark contrast to the situation in Australia, where investors are wagering that rates will be cut, perhaps as soon as next week.
The Reserve Bank of Australia (RBA) holds a policy meeting on Tuesday and is under pressure to ease given non-existent inflation in the first quarter and persistent falls in house prices.
Futures markets imply around a one-in-three chance of a cut in the 1.5 per cent cash rate while in a Reuters poll of analysts a sizable minority tipped a reduction although most think the RBA will wait a while.
"If they do go, there is a strong prospect there will be at least one more cut in fairly short order and chances are we will see the AUD head toward the lower edge of the 68-73 US cents range," said Ray Attrill, head of FX strategy at NAB.
"If there's no move on May 7th, we should see at least a temporary bounce in all things AUD as markets push rate cut timing into the second half of the year."
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