The Australian dollar has dropped against a strengthening greenback after Federal Reserve chair Janet Yellen flagged a rate rise could come soon.

At 0700 AEDT on Friday, the local unit was trading at 74.11 US cents, down from 74.79 cents on Thursday.

In an appearance before a Congressional Committee overnight, Yellen said the Fed could raise its interest rate “relatively soon” following further improvement in the job market and a pick-up in inflation.

“Reading between the lines of Yellen’s testimony, it really seems like she’s prepared to lift rates in December. The market’s currently pricing around a 95 per cent chance of that,” National Australia Bank economist Tapas Strickland said on Friday.

Westpac senior market strategist Imre Speizer said the US dollar rose to a 14-year high after Yellen “helped cement market expectations for a December rate hike”.

Yellen’s comments caused the Aussie and New Zealand dollar to fall, “despite risk sentiment remaining healthy,” Speizer said in a research note.

AAP

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