The Australian dollar was trading around three-week highs on Thursday, as improving commodity prices and division on whether the US Federal Reserve will lift interest rates on Friday, held up demand for the Aussie. 
In late local trade, the Aussie was buying US71.88Â¢, compared with US71.47Â¢ at the same time on Wednesday. It crept above US72Â¢ early in the local session and remained in touch with this level throughout the day.
Analysts said the recent recovery in the price of iron ore, Australia's principal export, and more softening in the Fed-inspired greenback rally, appeared to be driving Aussie sentiment.
Renewed calm across Asian equity markets was also holding the Australian currency aloft.
National Australia Bank senior currency strategist Emma Lawson said a rally in commodity prices and global stocks were helping support the Australian dollar.
"Equities are higher across the board - even Shanghai has a strong day," she said. "Commodities were up and the US dollar was lower."
The Fed is due to make an announcement on whether it has decided to raise its interest rate for the first time in nine years after its two-day policy meeting ends early on Friday morning, Sydney time.
The futures market has priced in a one-in-three chance of a rate rise this week and one is fully priced in for some time by   January. Economists surveyed by Bloomberg were almost evenly split on whether this week's Fed meeting would herald lift-off for a historic tightening cycle.
Whatever the outcome on Friday, a range of economists have argued that given still-benign inflation, divergent economic fortunes around the world and concerns about China, the Fed is likely to move slowly after lift-off.
This means that currencies, bonds and shares might behave differently to what they have in similar circumstances in the past.
"This tightening cycle by the US Fed may have a very different impact on financial markets than previous rate hike cycles," said asset manager Colonial First State in a note on Thursday.
"While the US Fed looks set to begin raising interest rates this year, it has also made it clear that this rate-hike cycle will be very gradual.
"As noted, recent volatility in global financial markets could act as a catalyst for the US Fed to delay the start of the normalisation process."
CommSec chief economist Craig James agrees that the pace of tightening will be crucial.
"Financial markets have been especially volatile in recent months as the lift-off point for interest rates has come into focus," he said on Thursday. "And that volatility has been further underpinned by the divided views of investors and analysts about when the rate hiking process begins. The hope is that that period of uncertainty ends this week with a decision to lift rates.
"The wording of the interest rate decision will be especially important to assure investors both as to the state of the economy and the future path of interest rates," he said.
WITH AAP