THE Australian dollar gained more than one US cent to a 25-month high today after the US Federal Reserve decided to engage in another round of quantitative easing.
Just before 1100 (AEST) the local unit reached its highest level since August 1, 2008.
At 1700 AEST, the local unit was trading at 95.64 US cents, up from yesterday's close of 94.54 cents.
Since 0700 AEST, the local currency traded between 95.34 cents and 95.83 cents.
In a statement on Tuesday night (AEST) the US Federal Reserve used the same language it did in August to sketch a downbeat view of the US economy and concluded that American economic activity had slowed in recent months.
It stands in direct contrast to the Reserve Bank of Australia's (RBA) recent comments about the health of the domestic economy and prospects for an interest rate rise soon.
Nomura Australia chief economist Stephen Roberts said the local unit lost some ground after reaching a peak of 95.83 US cents in late morning trade.
But it rebounded towards the European open as traders examined the prospect of an interest rate rise in Australia in October.
"You've got the exact polar opposite of what the central bank is planning to do here compared with what the Fed is probably preparing the market for in the United States,'' Mr Roberts said.
"That is certainly helping the Australian dollar and continues to support it.''
He said the US dollar had potentially reached a soft spot against most currencies.
"At the same time, we've had various speeches from senior RBA officials late last week and the earlier part of this week, including (governor) Glenn Stevens, sounding very upbeat about Australia's growth rate looking ahead.''
The RBA released minutes of its September board meeting yesterday in which it said it was ready to lift the cash rate if economic strength continues to point to higher inflation.
Mr Roberts was confident the local unit would hover around its lofty levels in the absence of any significant data during the offshore session.
"I think at this point, it's going to hold its higher ranges, if not push higher,'' he said.