Investing.com-- Most Asian currencies and the dollar held steady on Tuesday ahead of a crucial vote on sweeping U.S. tax cuts, while the Australian dollar dipped as markets awaited the Reserve Bank of Australia’s interest rate decision later in the day.
Meanwhile, the Chinese yuan was largely unmoved after the country’s central bank reduced its benchmark loan prime rate as expected.
The US Dollar Index, which measures the greenback against a basket of major currencies, was largely unchanged after ticking lower in the previous few sessions.
Market sentiment was also affected by global ratings agency Moody’s downgrading its investment grade rating on the U.S. by a notch over the country’s growing $36 trillion debt.
The critical vote in Washington over U.S. President Donald Trump’s sweeping tax cuts bill, if approved, could further widen the nation’s fiscal deficit.
RBA interest rate decision on tap; AUD down on rate-cut bets
The RBA will meet later in the day to decide its benchmark interest rates.
Markets are widely expecting a 25 basis point cut on Tuesday amid easing inflationary pressures and risks of an economic slowdown from U.S. tariffs.
A Reuters poll also showed that the central bank will cut its key rate by 25 basis points and twice more this year. The RBA held rates steady in its last meeting.
The Australian dollar’s AUD/USD pair ticked 0.2% lower ahead of the decision.
“The optics of a Q1 trimmed mean annual inflation pace returning into the RBA’s 2-3% band for the first time in over three years, alongside ongoing global trade uncertainty make an open and shut case for a 25bp cut, albeit perhaps tinged with cautious language and references to data dependency,” Westpac analysts said in a note.
Asia FX muted amid trade worries; PBoC cuts loan prime rate
The People’s Bank of China (PBOC) reduced its benchmark lending rates for the first time since October 2024, aiming to bolster economic growth amid ongoing trade tensions with the U.S.
The one-year loan prime rate (LPR) was lowered by 10 basis points to 3.0%, and the five-year LPR, a key reference for mortgage rates, was cut to 3.5% from 3.6%.
However, Investors were still cautious around further trade negotiations between the U.S. and China, after they temporarily lowered steep tariffs placed on each other.
China’s Ministry of Commerce on Monday accused Washington of jeopardizing recent trade discussions in Geneva, citing the U.S. Commerce Department’s advisory against the use of Huawei chips.
The Chinese yuan’s offshore USD/CNH and the onshore USD/CNY pairs were both muted.
Other regional currencies were also unchanged, including the Japanese yen’s USD/JPY pair.
The Singapore dollar’s USD/SGD pair was also flat, while the Indian rupee’s USD/INR pair ticked up 0.1%.
Bucking the regional trend, the South Korean won’s USD/KRW pair rose 0.5%.