Australian dollar plunges as US Fed shows more optimism

The Australian dollar has dropped more than one US cent after the Federal Reserve issued an upbeat assessment of the American employment market.

The currency fell as low as 87.77 US cents on Thursday morning, after hitting an overnight high of 89.13 cents before the Fed statement was released.

At 0700 AEDT on Thursday, the local unit was trading at 87.80 US cents, down from 88.64 cents on Wednesday.

The statement, issued after the Federal Reserve's two-day policy meeting, said the jobs market had enjoyed "substantial improvement" and the Fed expected its underlying strength to continue.

The Australian dollar has fallen more than 10 US cents in recent months as the US economy improves and the chances of an interest rate hike gets closer.

Westpac senior market strategist in Wellington Imre Speizer said the Fed now seemed more willing to raise its interest rate than in previous meetings.

"The US Federal Reserve surprised the market, boosting the US dollar," he said.

"A key change was its assessment that the labour market had improved."

The Fed reiterated that it will not raise the Federal Fund rate for a "considerable time", but a key change was that it said that was conditional on incoming information, Mr Speizer said.