The Australian dollar fell toward a four-month low on Tuesday after the Reserve Bank of Australia (RBA) softened its stance on monetary policy, fueling expectations of an earlier interest rate cut.
The U.S. dollar remained stable against major currencies, edging to its strongest level this month against the yen, as traders awaited Wednesday’s U.S. inflation report for further insights into the Federal Reserve’s policy trajectory.
By 0348 GMT, the Aussie had dropped 0.71% to $0.63955, after briefly touching $0.6380. This brought it close to Friday’s low of $0.6373, a level not seen since August 5. The New Zealand dollar followed suit, declining 0.61% to $0.5830.
The RBA kept interest rates unchanged, as anticipated, but indicated “some confidence” that inflation was moving back toward its target. Notably, the central bank removed previous language about keeping all options open and the need for restrictive policy settings.
“The RBA has effectively shed its hawkish tone, a critical step toward acknowledging potential rate cuts already priced in by markets for next year,” said Matt Simpson, senior market analyst at City Index. “The question now is whether a cut might come as early as Q1.”
Market bets on a February rate cut increased, with 13.6 basis points now priced in for the meeting.
Meanwhile, the U.S. dollar index, which tracks the currency against six major peers, held steady at 106.16.
The U.S. dollar slipped 0.07% to 151.11 yen after earlier reaching 151.55 yen, its highest level since November 28.
Markets have largely priced in a quarter-point rate cut by the Federal Reserve on December 18, but Wednesday’s consumer price index (CPI) report could provide further insight into the scope for easing in 2024.
Key events for investors this week include Thursday’s European Central Bank (ECB) meeting, where a quarter-point rate cut is widely expected, and China’s closed-door Central Economic Work Conference.
The euro held steady at $1.0554, while the British pound dipped 0.08% to $1.27415. The offshore yuan strengthened by 0.22% to 7.2525 per dollar, buoyed by Beijing’s surprise move on Monday to adopt a more accommodative monetary policy aimed at boosting the struggling economy and investor confidence.
Meanwhile, the Bank of Canada and the Swiss National Bank are set to announce their policy decisions on Wednesday and Thursday, respectively, with significant rate cuts anticipated from both.
The U.S. dollar climbed to C$1.41895 against the Canadian dollar, its highest level since April 2020. It eased slightly, down 0.1%, to 0.8778 Swiss franc.
