The Australian dollar has surged to its two-month high, as the greenback weakened after the US Federal Reserve decided keep interest rates on hold.

Markets at 8:05am (AEDT): ASX SPI futures +0.4pc at 5,841, ASX 200 (Tuesday's close) -0.5pc at 5,874

ASX SPI futures +0.4pc at 5,841, ASX 200 (Tuesday's close) -0.5pc at 5,874 AUD: 72.46 US cents, 55.26 British pence, 63.11 euro cents, 78.93 Japanese yen, $NZ1.05

AUD: 72.46 US cents, 55.26 British pence, 63.11 euro cents, 78.93 Japanese yen, $NZ1.05 US: Dow Jones +1.8pc at 25,015, S&P 500 +1.6pc at 2,681, Nasdaq +2.2pc at 7,183

US: Dow Jones +1.8pc at 25,015, S&P 500 +1.6pc at 2,681, Nasdaq +2.2pc at 7,183 Europe: FTSE 100 +1.6pc at 6,942, DAX -0.3pc at 11,182, CAC +1pc at 4,975, Euro Stoxx 50 +0.1pc at 3,157

Europe: FTSE 100 +1.6pc at 6,942, DAX -0.3pc at 11,182, CAC +1pc at 4,975, Euro Stoxx 50 +0.1pc at 3,157 Commodities: Brent crude +0.7pc at $US61.76/barrel, spot gold +0.5pc at $US1,318.43/ounce, iron ore +4.9pc at $US82.53/tonne

It jumped as high as 72.7 US cents (up 1.5 per cent)— but has since moderated to 72.54 US cents, at 8:25am (AEDT).

The dollar also lifted strongly, gaining about 1 per cent, to 63.11 euro cents and 55.26 British pence.

Meanwhile, the local share market is expected to rise at the open. ASX futures indicate an early gain of 0.3 per cent.

Fed relaxes its stance on rate hikes

The Fed kept rates steady, at the 2.25 to 2.5 per cent range, and took a more dovish tone compared to its post-meeting statements.

Instead of aiming for "further gradual increases" in rates, the Fed said it would "be patient as it determines what future adjustments to the target range" — which suggests the central bank may not raise borrowing costs in the foreseeable future.

Citing rising uncertainty about the US economic outlook, Fed chairman Jerome Powell said the case for raising rates had "weakened".

"The situation now calls for patience," he said, referring to the prospect of further rate hikes.

"I think it's the right thing. I feel strongly that it is."

The Fed also relaxed its position on reducing stimulus, and said it was prepared to adjust its plans based on economic and financial developments.

Fed chairman Jerome Powell signals US interest rates will rise at a slower pace than previously expected. ( Reuters: Joshua Roberts )

Mr Powell said the central bank would likely stop trimming its $US4.1 trillion balance sheet sooner, leaving it with more assets than previously expected.

Overall, the Fed's position was intended to convey maximum flexibility after it was buffeted in recent weeks by financial market volatility, signs of a global economic slowdown and a partial US Government shutdown that clouds the economy.

"This marks a full 180 from what the Fed was signalling just a few months ago," said Mohamed El-Erian, chief economic adviser at Allianz, California.

Market expectations of future rates fell further — with analysts expecting a one-in-four chance of a hike this year.

Market reaction

Wall Street was already trading higher prior to the Fed decision, but surged immediately afterwards.

The Dow Jones index closed 434 points higher, gaining 1.8 per cent to 25,015.

The benchmark S&P 500 lifted 1.6 per cent to 2,681, while the tech-heavy Nasdaq gained 2.2 per cent to 7,183.

Investors are also keeping an eye on the latest round of negotiations between high-level US and Chinese officials in Washington, hoping it may result in a deal which diffuses their ongoing trade war.

Boeing shares added 6 per cent to $US386.74, providing one of the largest boosts to the US market.

The world's largest aeroplane manufacturer forecast full-year profit and cash flow above analysts' estimates amid a boom in air travel and speedier 737 production.

Apple's stock soared 6.8 per cent to $US165.25 following yesterday's release of its December-quarter earnings which — despite a drop in iPhone sales and China revenue — was not as weak as many analysts had expected.

"What Apple is showing us is that when expectations have already come down and aren't getting any worse, then the markets have room to bounce," said Tom Plumb, chief investment officer at Plumb Funds.

"There is a growing perception that the economy is not going to be as bad in the United States as people thought."

Along with better-than-expected results from Apple, the Fed's comments helped Wall Street reverse two down days — triggered by profit warnings from US bellwethers Caterpillar and Nvida that signalled a bigger impact from China's economic slowdown.

ABC/Reuters