Dr Yellen's Jackson Hole speech at the weekend was something markets were specifically waiting for.
Leading into the symposium, several Federal Reserve members had given hawkish speeches, hinting of impending interest rate rises.
The symposium, in Grand Teton National Park and held each year since 1978, attracts central bankers from around the world and notables such as former Fed chairman Ben Bernanke, who twice used the venue to signal unconventional policies.
Market pricing for US interest rate rises had been very weak off the back of global uncertainty and some soft US data.
ASB chief economist Nick Tuffley said the Fed in June revised its longer-term outlook from 3% by 2018 to 2.375%.
``Taking all of this into account, markets have been wary for quite some time now of just how serious the Fed is to increase interest rates.''
While a speech on monetary policy by the Fed chairwoman was always keenly anticipated, the contrast between market pricing and recent Fed members' comments elevated the importance of her speech, Mr Tuffley said.
Markets wanted to know whether Dr Yellen was also now feeling more hawkish or if she would have a more dovish tone. In the end, her speech fell into the more hawkish end of the spectrum.
Dr Yellen noted the case for a rate hike had ``strengthened in recent months'' as the labour market continued to tighten and the outlook for economic activity and inflation improved, Mr Tuffley said.
``Interestingly, it took markets a little while before they appeared to believe what Yellen said. It wasn't until [Fed vice-chairman] Stanley Fischer noted Yellen's comments were consistent with two more interest rate hikes this year that markets really took notice and the US dollar took a leg higher.''
The odds of a September rate rise had since doubled from 15% to 20% last week to 36% and odds of a rate rise in December moved from 60% to 50%, Mr Tuffley said.
Reserve Bank governor Graeme Wheeler would be ``somewhat relieved'' by Dr Yellen's tone and the subsequent market reaction. That was especially so given the dollar rose after Mr Wheeler's speech last week on monetary policy challenges in turbulent times, despite reiterating the same messages from the August Monetary Policy Statement.
Mr Wheeler would also be hoping the increased chances of US interest rate rises continued to support the US dollar, providing some relief to the New Zealand dollar, Mr Tuffley said.
The US dollar index, which tracks the greenback against a basket of six rivals, was steady yesterday at 95.551, not far from Friday's high of 95.594, its highest level since August 16.
New Zealand's trade-weighted index fell to 76.94 from 77.54.
The Australian dollar was trading at US75.60c, down from US76.33c on Friday.
China's yuan weakened yesterday morning to its lowest level in more than a month on broad US dollar strength.
