Australian dollar nose dives after US hikes key interest rate

The Aussie dollar has dropped sharply after the US Federal Reserve raised a benchmark interest rate by a quarter percentage point, citing an improving economy.

At 6.30am today, the local unit was trading at 74.53 US cents, down from 74.89 cents yesterday.

The Aussie had traded above 75 US cents in overnight trade but plunged after the US Federal Reserve made its rates announcement at 0600 AEDT.

As of 6.30am today one Australian dollar buys (Source: IRESS):

74.53 US cents, from 74.89 cents on Wednesday

6.51 Japanese yen, from 86.25 yen

70.41 euro cents, from 70.37 euro cents

The policy-setting Federal Open Market Committee voted unanimously to increase the key federal funds rate to a range of 0.5 to 0.75 percent, but repeated that it expects the economy will require only "gradual" increases going forward.

The rate increase from the previous range of 0.25 to 0.5 percent is the first hike since December 2015 and only the second in a decade.