SINGAPORE- The dollar was steady near two-month lows on Tuesday as traders weighed tariff worries and the path to US rate cuts, while the Australian dollar inched lower in volatile trading after the Reserve Bank of Australia delivered on an expected rate cut.
The RBA cut its cash rate by 25 basis points to 4.10 percent on Tuesday in its first easing since the 2020 pandemic, but was still cautious about prospects of further policy easing.
That left the Australian dollar 0.2 percent lower but steady at $0.63441 after an initial burst of choppiness following the policy decision. The Aussie touched a two-month high of $0.6374 on Monday.
“For the AUD, the depth of cuts matters more than timing,” said Yuxuan Tang, global market strategist at J.P. Morgan Private Bank.
“Current levels suggest that the AUD has factored in tariff-related risk premiums. While we acknowledge potential drags from widespread tariffs, pricing appears comprehensive.”
Investor focus this week will be on Wednesday’s release of minutes of the Federal Reserve’s meeting in January to gauge how policymakers have sought to weigh the risk of a broader tariff war in the wake of President Donald Trump’s trade policies.
Data last week showed US consumer prices increased at the fastest pace in nearly 18 months in January, reinforcing the Fed’s message that it was in no rush to resume cutting rates amid growing economic worries.
“Trade policy uncertainty is at a record high …and given that the labor market is solid, there is no compelling case to cut rates imminently,” ANZ strategists said in a note.
“An extended pause during the first half of this year looks justified and will give the Fed time to assess the impact of trade measures on inflation.”
ANZ now expects rate cuts to resume in the second half of 2025, with a further 75 bps of easing anticipated. Markets though are not as optimistic, with traders pricing in 40 bps of cuts for this year.
In Asia, the yen held on to its recent gains as strong growth data bolstered odds of the Bank of Japan raising interest rates again this year, with July seen as a live meeting.
The yen was steady at 151.61 to the dollar as Japan’s solid October-December GDP data on Monday, coupled with recent inflation numbers, helped lift the currency. It is up nearly 4 percent against the dollar so far in 2025.
