Turmoil in global markets has pushed out expectations for the first interest rate rise from the US Federal Reserve, threatening to hold up the Australian dollar and frustrate the Reserve Bank of Australia's hopes to start "normalising" its record low rates.

Bonds were whipsawed on Wed­nesday and Thursday with Australian 10-year yields sinking to 3.19 per cent, the lowest in more than a year and a half following a rally in US Treasuries.

Deflation worries that stemmed from Europe mounted.

Volatility soared on Wall Street, sending the local sharemarket down almost 90 points, or 1.6 per cent, before recovering to close at 5254.9 points, up 9 points, capping an extraordinary session.

Commonwealth Bank of Australia chief economist Michael Blythe said the uncertainty around global growth had wiped out hawkish interest rate expectations for the US, giving Fed chair Janet Yellen more time to hold rates at zero. This would suppress the US dollar rally.

"US markets have gone from saying rates will probably go up in the ­second quarter of 2015, to saying they are unlikely to go up ever basically. Any chance of a near-term rate rise in markets has been taken out by this," Mr Blythe said.

This would trouble other central banks because of the currency impact.

"There's this widespread view that the RBA can't move before the Fed, but the reality is they've done it many times. The issue's what it might do to the ­currency," Mr Blythe said. "Outside of the US most central banks are very keen to see the Fed start doing something more concrete because that is widely seen as a trigger for the US dollar."

The Australian dollar last night was fetching US87.90¢.

Leading investors urged for cooler heads. Platinum Asset Management founder and billionaire Kerr Neilson said: "Yes, we are prepared to buy ­selectively here and in some cases fears about international travel, tourism" – referring to the Ebola outbreak – "could throw up superb opportunities, but also add to the doubts about world growth in the short term.

"In the past week, the International Monetary Fund has downgraded world growth chiefly because Europe risks a triple-dip recession.

Optimism around the US economy has faded too but the doves led by Dr Yellen have reasserted dominance.

Still, the US unemployment rate is now lower than Australia's while the collapse in commodity prices is hurting Australia's terms of trade.

All eyes on inflation data

JPMorgan economist Tom Kennedy said the risk from the Fed's perspective was perceived to be tightening too soon.

"Those risks are pretty symmetric. There's a risk you can go too early and stall the recovery before it gets on a firm footing. At the moment the risk is probably a bit more skewed to them going too early than too late," he said.

"The main transmission for Australia will be through the currency. If they delay hiking that's obviously bullish for the Australian dollar . . . as we know, the RBA does not want an ­elevated currency."

Inflation data due on Wednesday for the September quarter will be critical in shaping consensus on the outlook for Australian interest rates.

The Reserve Bank has signalled it is considering macro-prudential lending restrictions to stem worrying house price inflation rather than lift its record low 2.5 per cent cash rate, which would risk pushing up the Australian dollar.

RBA assistant governor Guy Debelle earlier this week issued one of the ­starkest threats from the central bank since the global financial crisis, warning that investors were not appreciating the risks and he observed a complacency he deemed "dangerous".

Dr Debelle also foreshadowed a ­"relatively violent" rout in bond markets, however the price action witnessed on Wednesday out of the US suggested otherwise. S&P 500 futures pointed to a slight gain ahead of the resumption of trading on Wall Street on Thursday.

BT Investment Management head of equity strategies Crispin Murray said a correction in global markets appeared likely. "We've got a series of weaker data points on economic growth from around the world. That, I think, has led to a building concern we're going to get a policy mistake whereby policy makers are unable to deal with challenges they face, for example: Europe just can't resolve their slowing growth," he said.

"There's no reason to think they're going to do anything now that will ­jeopardise [economic stability]. In our view what we'll be seeing is what is really the first significant correction we've had for some time."

Australian stocks would be better off, Mr Murray believes, because the ASX 200 had not appreciated as much as some of its global counterparts and investors were actively looking at ­buying opportunities.

Platinum's Mr Neilson said he was reducing exposures to Western markets and building short positions, while increasing his allocation to ­Eastern markets.

"Concerns about a very weak, low growth environment has resulted in a sell-off of typically 30 per cent among reasonable quality cyclicals, some will prove reasonable investments at these prices," he said.