The local currency had stabilised at US79.2?? in late Friday trade after earlier in the day threatening to drop below US79??.

Those moves capped a dramatic 36 hours for the currency. The Aussie had traded as high as US81.02?? at about 4am AEST on Thursday, ahead of the highly anticipated release of a statement from the US Federal Reserve, and fell as low as US79.07?? on Friday - a swing of more than 2 per cent.

The local dollar was caught in a downdraft of negativity: the prospect of Australian interest rates falling behind global peers; the US central bank signalling it sees rates there rising for a third time this year, a plunge in the spot price of iron ore in Thursday night, and a credit rating cut for China by Standard & Poor's.

"We expect [the Aussie] to continue to underperform and see a potential move down to US78??," BK Asset Management currency strategist Kathy Lien said in a note to clients.

Also catching traders' attention was a speech on Thursday afternoon by Reserve Bank governor Philip Lowe, in which he outlined a general path to higher interest rates, while reiterating that it would still be "some time" before there would be an increase here.

"People should prepare for higher interest rates, they are rising globally and if things work out well here over time - I am not saying when, but over time - we would expect higher rates here," Dr Lowe said.

"People don't like hearing this but we will all be better off if the next move is up rather than down."

Ms Lien said investors heard the governor say "global rate rises have no automatic implications for Australia as the flexible dollar allows independence on timing of rate rises". This was a signal that the RBA will "lag" the Fed, European Central Bank, Bank of England and Bank of Canada, Ms Lien said.

The Bank of Canada has lifted rates twice this year and a third is expected in the months ahead.

Lowe's 'dovish' speech

For NAB economist Tapas Strickland the reason for the local currency's Thursday night swoon was clear enough, too: "The market interpreted the speech as dovish given comments that a rate rise was not imminent".

Mr Strickland attributed about a quarter of the currency's fall on the governor's speech, and the balance on the 5 per cent lurch lower in the price of iron ore on Thursday night.

Chinese futures trading pointed to the potential of another tumble on Friday night. The spot price of iron ore is at its lowest since July; the plunge this week follows comments in the latest RBA meeting minutes that Chinese steel output - and demand for iron ore - "was likely to be close to its peak".

With Thursday's drop, the spot price of iron ore has plunged 16 per cent this month.

The currency's wide swings of late is putting a cloud over a string of upbeat forecasts for the Aussie.

The currency rose to a two-year high on September 8, a little more than a week after the Commonwealth Bank analysts bet on a US85?? top for next year. Even with the latest slump, the Aussie is still 10 per cent higher against the greenback this year.

The background for the currency's recent moves was the US Federal Reserve's statement on Thursday morning in which it confirmed a continual, gradual tightening of monetary policy by slowly lifting rates and paring back its balance sheet.

The Fed has lifted rates three times in its current cycle, once in 2016 and twice so far this year. It expects to edge rates higher through 2018 and into 2019.

Interest rates futures implied traders saw a 73 per cent chance the Fed would raise rates at its December 12-13 meeting, steady from on Wednesday and up from 37 per cent a month earlier, according to CME Group's FedWatch program, Reuters reported.

Capital Economics said it now expects the Fed to lift in December and four more times in 2018.