The Australian dollar briefly broke through US77¢ overnight before easing. Credit:Louie Douvis Driving the local unit this week were comments by US Federal Reserve boss Janet Yellen that the central bank would take a cautious approach to interest rate rises on the back of global turmoil. Lowered expectations for interest rate rises this year have taken the steam out of the US dollar's march upwards in the lead up to its first interest rate rise since 2006 in December last year. The tempering of expectations of rate rises in the US is one reason the Commonwealth Bank of Australia upgraded its forecast for the currency this week. It previously expected the currency to sit at US67¢ by the end of June, but has revised that to US75¢. Its year-end target is US78¢, compared with its previous forecast of US70¢.

The foreign exchange strategy team led by Richard Grace noted three other reasons for the revision: that the economy continued to surprise with positive data; global commodity prices appear to have bottomed out; and Australia's current account deficit is set to improve in 2016 and 2017. Short-term upswing AMP Capital chief economist Shane Oliver said he believed the currency could reach as high as US80¢, but would reach its limit there in what was a short-term upswing. "It's premature to say that the Australian dollar has seen its lows and the trend is now up. In fact my view remains that the trend is still down," he said.

"While the big picture outlook for the US dollar has turned neutral, the combination of soft commodity prices and the relative interest rate differential between Australia and the US set to narrow point to a resumption of the downtrend in the Australian dollar in the months ahead," he said. Westpac currency strategist Rob Rennie also expected a lift in the currency in the short term and said its fair value range was between US76¢ and US80¢. But while iron ore prices have bounced, he said he was also sceptical that the downtrend had turned. Iron ore for delivery to Qingdao, China fell 1.7 per cent overnight to $US54.18 a tonne, making the Aussie's overnight push more remarkable. "Rightly or wrongly, I think there is a lot to be said for the idea that the move higher in iron ore indices has been driven at least in part by speculation rather than fundamentals," Mr Rennie said.

However, the market was not convinced that the US Federal Reserve will hike rates his year. Combined with fading fears about China's economy and a global search for higher yield, which includes the Australian dollar, add to the likelihood that the support for the currency remains. "Until I see signs that the market is embracing Fed hikes and until I see iron ore back into a $US40 to $US50 range, I suspect that we could see the Australian dollar holding in a US74¢ to US78¢ range," Mr Rennie said. ANZ Banking Group is more bearish on the Aussie, tipping it to ease to US74¢ by June and end the year near where it started at US67¢.