Dollar Steady Near Two-Month Lows as RBA Cuts Rates; Yen Gains on BOJ Hike Bets

The dollar remained near two-month lows on Tuesday as traders assessed tariff concerns and the outlook for U.S. rate cuts, while the Australian dollar dipped in volatile trading following the Reserve Bank of Australia’s expected rate cut.

The RBA reduced its cash rate by 25 basis points to 4.10%, marking its first easing since the 2020 pandemic. However, the central bank remained cautious on further policy easing. The Australian dollar slipped 0.2% to $0.63441 after initial choppiness, having 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 attention now turns to the Federal Reserve’s January meeting minutes, set for release on Wednesday, to gauge policymakers’ stance on potential tariff wars under President Donald Trump’s trade policies.

Last week’s data showed U.S. consumer prices rose at the fastest pace in nearly 18 months in January, reinforcing the Fed’s cautious stance on resuming rate cuts.

"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 noted. "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. However, markets remain less optimistic, pricing in 40 bps of cuts this year.

In Asia, the yen held on to recent gains as robust growth data raised expectations of a Bank of Japan rate hike in 2025, with July seen as a key decision point. The yen stood firm at 151.61 per dollar after strong October-December GDP figures and recent inflation data supported the case for further tightening. The yen has gained nearly 4% against the dollar so far this year.

The dollar index, which measures the greenback against six major currencies, edged up 0.1% to 106.83 but remained near Friday’s two-month low of 106.56.

The euro was stable at $1.04735, while sterling held at $1.2608 ahead of peace talks in Saudi Arabia aimed at resolving the Ukraine conflict.

Meanwhile, the New Zealand dollar declined 0.3% to $0.57195 ahead of the Reserve Bank of New Zealand’s Wednesday meeting, where a 50-bps rate cut is widely expected.

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