The Australian dollar is slightly lower with the market not surprised by the US Federal Reserve announcement of a small winding back its economic stimulus program.

At 0700 AEDT on Thursday, the local unit was trading at 88.84 US cents, down from 89.04 cents on Wednesday.

Early on Thursday morning, the Fed said it will reduce its bond purchases by $US10 billion a month to $US75 billion, starting in January.

Trade in the Australian dollar was volatile soon after the Fed announcement, with the currency rising as high as 89.44 cents and falling as low as 88.21 US cents, its weakest level since August 2010.

LTG GoldRock director Andrew Barnett said the Australian dollar’s fall was limited because a small tapering of the Fed’s program was expected by most people.

“For a couple of months now it has been priced in, but there is nothing in this report that suggests the Aussie dollar will rally,” he said.

“My personal view was that (Fed chairman) Ben Bernanke would want to start to taper before he finishes his tenure at the end of January. He’s the guy that started the stimulus and he wants to be the one that finishes it.”

Barnett expects the Australian dollar to remain under pressure but not fall too far because of the interest rate difference between the US and Australia.

“Once people realise that they’re going to taper gently and slowly, with zero per cent interest rates in the US and 2.5 per cent in Australia, in my view, we’re looking at the Australian dollar trading at 85 US cents (in the coming months).

“The fact is the Reserve Bank in Australia wants to see the Aussie down at 85 US cents and they’re going to get their way.”

AAP