- Aussie holds ground after RBA cuts rates as expected
- Dollar rises but near two-month lows amid tariff worries
- Euro, sterling steady as focus on Ukraine peace talks
- Yen on back foot after recent rise on BOJ hike wagers
SINGAPORE, Feb 18 (Reuters) - The dollar firmed on Tuesday as traders weighed tariff worries and the path to U.S. rate cuts, while the Australian dollar held steady near two-month highs after the Reserve Bank of Australia delivered an expected rate cut but cautioned on further easing.
The RBA cut its cash rate by 25 basis points to 4.10% on Tuesday in its first easing since the 2020 pandemic, but was cautious about prospects of further policy easing.
That left the Australian dollar steady at $0.6351 after an initial burst of choppiness following the decision. The Aussie touched a two-month high of $0.6374 on Monday and is up 2.4% in February on easing trade war worries.
Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities, said the RBA's statement struck the right balance without boxing in the central bank to delivering a follow-up cut. "That said we retain our forecast for cuts in May and August."
Swaps imply just a 20% probability for a follow-up cut in April, although a move in May is still almost fully priced in.
Speaking at a media conference, Australia's top central banker Michele Bullock said market pricing for two more quarter-point cuts this year was ambitious and policy makers were more cautious about the outlook.
Kerry Craig, global market strategist at J.P. Morgan Asset Management said the RBA's move looks more like an "insurance" cut, which keeps it in step with global central banks, rather than the start of an aggressive easing cycle.
"This easing cycle will certainly not be a sprint to the end, but rather a slow walk on the path towards lower rates and further cuts ahead."
Investor focus this week will be on Wednesday's release of minutes of the Federal Reserve's meeting in January to gauge how policymakers have sought to weigh the risk of a broader tariff war in the wake of President Donald Trump's trade policies.
Data last week showed U.S. consumer prices increased at the fastest pace in nearly 18 months in January, reinforcing the Fed's message that it was in no rush to resume cutting rates amid growing economic worries.
"Trade policy uncertainty is at a record high ... and given that the labour market is solid, there is no compelling case to cut rates imminently," ANZ strategists said in a note.
"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. Markets though are not as optimistic, with traders pricing in 40 bps of cuts for this year.
In Asia, the yen was on the back foot after its recent gains as strong growth data bolstered odds of the Bank of Japan raising interest rates again this year, with July seen as a live meeting.
The yen was last at 152.165 to the dollar, down 0.4% on the day. Japan's solid October-December GDP data on Monday, coupled with recent inflation numbers, have helped lift the yen. It is up nearly 4% against the dollar so far in 2025.
The dollar index , which measures the greenback against six other major currencies, was 0.27% higher at 107.01, still not far from the two-month low of 106.56 it touched on Friday.
The euro was 0.27% lower at $1.045475, while sterling eased 0.2% at $1.2593 as traders braced for talks in Saudi Arabia later on Tuesday aimed at ending the Ukraine war.
The New Zealand dollar fell 0.55% to $0.57195 ahead of the Reserve Bank of New Zealand meeting on Wednesday, where the central bank is widely expected to cut rates by 50 bps.
Reporting by Ankur Banerjee in Singapore; Editing by Kate Mayberry and Christopher Cushing
Source: Reuters