Meanwhile, US consumer prices unexpectedly fell in May and retail sales recorded their biggest drop in 16 months, suggesting a softening in domestic demand that could limit the Federal Reserve's ability to continue raising interest rates this year.
The dollar index, which tracks the greenback against six major currencies, fell to its lowest level since November 9 in early trading after the release of weaker-than-expected US inflation and retail sales figures.
As Australia's interest rates are still higher than United States interest rates, lower Fed rate hike bets have made the "Aussie" more appealing to investors seeking higher yields this week.
The Fed hiked USA interest rates on Wednesday as was widely expected. Year-on-year, retail sales increased by 0.9% last month, compared to forecasts for a 1.7% rise.
The euro is down by 0.5% at 1.1160 against the dollar.
The annual inflation rate hit a more than eight year high in early May of 6.16 percent, well above the central bank's target rate of 3 percent, plus or minus one percentage point. They fell as low as 2.103 percent following the downbeat data, their lowest since November 10. The vote's composition had been expected to be 7 to 1 in favor of a hold.
"It remains to be seen if the Fed can really do both this year - raise rates again, and also begin reducing its balance sheet", Imaizumi added.
Charles Melchreit of Pioneer Investments says markets may be finding it "a bit of a comforting outcome", that the Fed isn't willing to shift the rate hike path it has set out that quickly, even if current inflation numbers aren't backing it up.
A Reuters poll of 21 of the 23 primary dealers that do business directly with the Fed showed 14 of them now believed it would announce the start of its balance sheet normalisation at its September 19-20 policy meeting.
"The Fed has pretty much reaffirmed its intent, absent any pronounced deterioration, of continuing to normalise rates, to raise once more this year", said Joseph Trevisani, chief market strategist at WorldWideMarkets Online Trading. The rest of them said it would make such a move at its December 12-13 meeting.
Investors were also surprised by the Fed's plans to shrink its $4.5trn balance sheet as these were more aggressive than expected.
The New Zealand dollar slipped 0.1 percent to $0.7215 NZD=D4 after touching a low of $0.7197, moving away from the previous session's almost four-month high of $0.7228.
The U.S. central bank is scheduled to release its decision at 1800 GMT on Wednesday with a news conference to follow from Chair Janet Yellen.
"Either way you slice it, the market is just not buying it and expects the economy to slow and the yield curve to flatten", she says.
Commodity-linked currencies such as the Australian Dollar, New Zealand Dollar and Canadian dollars, also pared gains against the US currency after touching multi-month highs following the release of USA data.