THE Australian dollar closed marginally firmer as the US central bank's plan to spend $US800 billion boosting the American credit market helped high-yielding currencies.
At 1700 AEDT, the Australian dollar was trading at $US0.6462/65, up 0.2 per cent from Tuesday's close of $US0.6449/53.
During the day, the local unit moved between a low of $US0.6434 and a high of $US0.6514.
The Australian dollar pushed through $US0.6500 briefly during mid-morning trade as investors responded to the US Federal Reserve's $US800 billion ($A1.23 trillion) plan to boost the US consumer credit and mortgage securities markets.
Under the Term Asset-Backed Securities Loan Facility program, the US Fed will buy $US500 billion ($A768.34 billion) worth of residential mortgage-backed securities.
It will also acquire $US100 billion ($A153.67 billion) of direct debt of government sponsored enterprises Fannie Mae and Freddie Mac, and invest $US200 billion ($A307.34 billion) in non-residential loans.
The positive sentiment from the US Fed plan was unsustained, with a two per cent fall on the Australia share market keeping the domestic currency below Tuesday's closing levels for much of the afternoon.
New York's main share indices had finished less than one per cent firmer on Tuesday, after a choppy session.
RBC Capital Markets senior currency strategist Sue Trinh said a drop in the Japanese share market on Wednesday saw the Australian dollar sold for the low-yielding yen.
"Foreign exchange markets still remain linked to equity markets," she said.
Risk appetite was put under pressure after credit ratings agency Fitch Ratings downgraded Toyota Motor Corporation's unsecured debt rating to 'AA' from 'AAA'.
The Australian dollar was expected to trade between $US0.6350 and 0.6500 during offshore trade as markets reacted to US data for October on personal core expenditure, new home sales and durable good orders.
Ms Trinh said weak US data would hurt global share markets.
"That's likely to drive the risk aversion theme," she said.
Traders are tipped to take their cues on Thursday from forward estimates for 2009 and 2010 in private capital expenditure data for the September quarter.
A bigger than expected set of numbers would see financial markets pare back their expectations for the size of a rate cut from the Reserve Bank of Australia in December.
Debt futures markets expect the RBA to cut rates by 100 basis points, which would take the cash rate to 4.25 per cent for the first time since May 2002.
Meanwhile, the Australian share market closed around two and a half per cent weaker despite gains in resource giant BHP Billiton and a positive lead overnight from Wall Street.
The benchmark S&P/ASX200 index finished down 83.4 points, or 2.3 per cent lower, at 3540.0, while the broader All Ordinaries dropped 95.8 points, or 2.68 per cent, to 3479.6.
On the Sydney Futures Exchange, the December share price index futures contract fell 54 points, or 1.49 per cent, at 3565 points on volume of 32,942 contracts.
Margin calls after BHP Billiton scrapped its $US66 billion ($A100 billion) proposed bid for Rio Tinto had the equities market finish in negative territory.
IG Markets research analyst Ben Potter said the market had drifted throughout the day, with selling into the strength.
"The BHP Rio issue is an absolute mess for anyone who holds Rio Tinto," he said.
"There has been a few big margin calls go out for that today," he said.
"I think there is going to be an overhang of stock being sold for Rio Tinto over the next couple of days."
Market talk was that Rio would have to raise capital as well, Mr Potter said.
Rio Tinto Ltd has ruled out raising capital, saying it is not uncomfortable with its huge debt position.
BHP Billiton finished $1.03, or 3.93 per cent, stronger at $27.25, while Rio Tinto plunged $21.89, or 34.26 per cent, to $42.01.
Other resources stocks also lost ground, with Oil Search down 27 cents, or 5.68 per cent, to $4.48, Santos losing 56 cents, or 3.85 per cent, to $14.00 and Woodside Petroleum $1.60, or 4.78 per cent, weaker at $31.90.
AAP