Markets Live: Federal Reserve lifts interest rates above RBA rate

However, it lifted its median forecast for 2019 to 2.9 per cent, from 2.7 per cent, and for 2020 it raised the median forecast to 3.4 per cent from 3.1 per cent.

Matthew Sherwood, head of investment strategy at Perpetual Investments, said: "I think that investors are getting a bit worried about how much hiking the Fed is planning to do."

The Fed on showed on Wednesday that they will clamp down on the US economy in time, he said.

Broadly, the US rate hike is another chapter in the story that markets are getting past the easy stage of the cycle, that the sweet spot of improving economic growth and dovish central banks is coming to an end, Mr Sherwood added.

"The easy gains and the glory days of this cycle are over," he said. "I suspect that the second half of the year is going to be bumpy. At best it will be a grind, at worst we will see more volatilty."

"I think it is historic because it's very likely to stay this way for years," Jamieson Coote Bonds chief investment officer Charlie Jamieson said.

"We've had moments where we have been briefly out of sync, but the large weight of evidence says it's more sustainable this time around."

What has most surprised economists the most is the resilience of the exchange rate.

In early 2001, the relative strength of the two economies was amply reflected not only in the negative rates differential but in the Aussie dollar, which plunged below US50¢.

The RBA is sure to be watching how the currency unfolds.

The Aussie's trade-weighted index has already begun to soften in recent months under the influence of strengthening currencies such as the euro. Indeed, on a trade-weighted basis, our currency is at its weakest since July 2016 when the RBA was cutting rates.

Governor Philip Lowe has repeatedly indicated he would welcome a substantially weaker currency and the boost it would provide to the prices of imported goods and therefore inflation.

"If the currency continues to fall then that brings the RBA alive," Mr Jamieson said.

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Financials are the worst performers in early trading, with CBA sliding 0.9 per cent, Westpac losing 0.7 per cent, ANZ falling 0.6 per cent and NAB also losing 0.6 per cent.

Telecom Telstra is down 1.7 per cent, property company Scentre is falling 1.9 per cent and supermarket Woolworths is lower by 1.3 per cent.

But energy companies and miners are helping to limit losses after the weaker US dollar helped to lift commodity prices overnight, with BHP up 2 per cent and Beach Energy higher by 2.6 per cent.

Syrah Resources jumped 4.3 per cent and Alumina is climbing 4.3 per cent.

Australian shares appear set to open lower, with SPI futures down 8 points.

The US dollar's retreat in the wake of the FOMC policy announcement buoyed raw materials prices, which are typically denominated in terms of the benchmark currency on global markets.

Gold raced upward as front-end Treasury bond yields declined and the priced-in 2018 rate hike path implied in Fed Funds futures flattened a bit.

Not surprising, that boosted the appeal of anti-fiat and non-interest-bearing assets.

Crude oil hit the highest level in nearly two months, adding to a five-day winning streak. Improving risk appetite amid fading fears of accelerated US tightening and EIA statistics echoing the API call for an inventory drawdown amplified USD-derived strength.

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The cash rate has been at 1.75 per cent since November 2016.

Spencer said that inflation is expected to fall further in the near term before moving up to the bank's 2 per cent target over the medium term.

The on-hold rate call didn't have much impact on the New Zealand dollar against the greenback and it traded at US72.36¢ after the decision.

"The brief statement left a blank playbook for incoming RBNZ Governor Adrian Orr," noted TD Securities strategist Annette Beacher.

"While as expected, we take the opportunity to push back the timing for the first RBNZ hike to November. Consensus does not expect a rate rise this year," she said.

Ms Beacher said that most local analysts are of the view that soft business confidence and house prices combined with sluggish wages and inflation will keep the RBNZ on hoid well into 2019.

"In contrast, we remain tilted to the hawkish side and see fiscal stimulus being piled up on top of an economy that is already at breaking point in terms of capacity," she said.

US stocks ended a choppy session on a slightly negative note, after the Fed's 25 basis point hike to a range of 1.5 per cent to 1.75 per cent. The US rate is now above the RBA's official cash rate of 1.5 per cent for the first time in 18 years.

While markets had been expecting the lift in US interest rates, traders had speculated ahead of the meeting that the Fed could upgrade its median forecasts for the Fed funds rate, or 'dot points', to signal four rate hikes rather than three in 2018.

The FOMC's year-end Fed funds rate estimate remained at 2.1 per cent for 2018, while its estimate for 2019 rose to 2.9 per cent from 2.7 per cent.

The US dollar fell after the Federal Reserve rate meeting, moving down 0.8 per cent to 89.660. As the US dollar weakened, the Australian dollar climbed, moving up 1.1 per cent to retop the US77¢ mark.

"The US dollar has declined as it typically does following the Fed raising interest rates," said CBA's Peter Kinsella.

"The US dollar undergoes this pattern because Fed rate rises are fully priced, and there is usually a decline in short‑end and long‑end rates and bond yields following the FOMC statement (as there was today)."

Fed chairman Jerome Powell also signalled the central bank would tolerate inflation that runs above its 2 per cent target.

NAB economists noted: "perhaps the implied willingness to project – and so tolerate - a period of above-target inflation, accounts for the more considered US dollar negative/lower bond yields market reaction."

Key for Australian investors today will be the labour force data and ANZ economists are expecting the unemployment rate to fall 0.1 percentage points to 5.4 per cent.

"The Australian labour market continues to improve gradually, but spare capacity remains," the economists noted.

Energy stocks will be in focus today after oil futures jumped, with Brent crude up $2.35, or 3.5 per cent, to $69.77 a barrel.

On the economic agenda today:

• Labour force February
• RBNZ policy decision
• Japan Nikkei manufacturing PMI Marc
• Euro Zone Markit manufacturing PMI March, Services PMI March
• German IFO business climate March
• UK retail sales February
• Bank of England policy meeting
• US Markit manufacturing and services PMI March
• FHFA house prices January

Stocks to watch:

• Ex-Dividend: Flight Centre, Huon Aquaculture, Carsales
• Auswide Bank Upgraded to Buy at Bell Potter
• CBA Downgraded to Hold at Bell Potter
• MMA Offshore Reinstated with buy at Shaw and Partners
• Nufarm Upgraded to Overweight at JPMorgan

This blog is not intended as investment advice.

Fairfax Media with wires.