The Australian dollar (AUD) pared its recent gains on Tuesday (21/1) after a strong performance in the previous session. However, the AUD/USD pair strengthened as the US dollar (USD) weakened, with traders looking at US President Donald Trump's economic policy updates, particularly on tariffs.

The S&P/ASX 200 Index rose to nearly 8,400 on Tuesday, hitting its highest level in six weeks. The rally came after Donald Trump's second-term inauguration, as markets reacted positively to his decision not to announce new tariffs.

Traders are increasingly anticipating that the Reserve Bank of Australia (RBA) could start cutting interest rates as early as next month. This sentiment was boosted by softer core inflation data, which has fallen to its lowest level since the fourth quarter of 2021, close to the RBA's target range of 2% to 3%. Attention now turns to Australia's quarterly inflation report due next week, as it could provide further insight into the likely direction of interest rates. (AL)

Source: FXstreet