The U.S. dollar was slightly lower on Tuesday, but still within striking distance of its three-month high, while the Australian dollar rose after the central bank said a rate hike may be needed to tame inflation.
The Reserve Bank of Australia (RBA) on Tuesday left rates unchanged, but cautioned about a possible further monetary tightening.
Investors have steadily pushed back bets for the first rate cut from the RBA to August, rather than June, with economists polled by Reuters also expecting the central bank to stay steady on rates well into the second half of this year.
The Aussie rose 0.35% to $0.6505, inching away from the 2-1/2 month low of $0.6469 it touched on Monday. The New Zealand dollar was 0.13% higher at $0.6063.
The Aussie dollar is usually strongly correlated to Chinese stocks, as China is Australia's largest trading partner.
Chinese stocks recorded their biggest one-day gain since 2022 on Tuesday and the yuan rose on a slew of signals that authorities are strengthening their resolve to support slumping markets.
A string of robust U.S. economic data and remarks from Federal Reserve Chair Jerome Powell have quashed speculation of early and steep interest rate cuts and supported the dollar.
Traders have been scaling back rate cut bets since the beginning of the year and are currently pricing in only a 16% chance of a cut in March, the CME FedWatch tool showed, compared with a 69% chance at the start of the year.
They are also now pricing in around 115 basis points (bps) of cuts this year, compared with around 150 bps of easing anticipated in early January.
The dollar index , which measures the U.S. currency against six others, eased 0.11% to 104.34, having touched 104.60 on Monday, its highest since Nov. 14. The index is up 3% for the year so far, after dropping 2% in 2023.
The euro was up 0.16% at $1.0761%.
Investors will focus on the ECB's consumer expectations survey, due later in the session, which could deliver hints about the disinflation process affecting expectations for policy.
Sterling last fetched $1.2558, up 0.18% on the day, but remained close to Monday's seven-week low.
The pound's fall on Monday came despite some upbeat economic data. Figures showed that UK unemployment was likely much lower late last year than previously thought, which could push out British rate cuts too.
The Japanese yen was stronger on the day at 148.57 per dollar, but not far off a two-month low of 148.90 it touched on Monday.
Japan's real wages fell for a 21st straight month, though at a slower pace, while household spending dropped for a 10th consecutive month, showing inflation outpaced wage recovery and continued to weigh on consumer spending.
Source: Reuters
