Dollar Holds Gains on U.S. Data, Fed Bets as Aussie Jumps on RBA Hike

The dollar held gains on Tuesday, supported by upbeat U.S. economic data and shifting expectations around Federal Reserve policy, outweighing concerns over a potential U.S. government shutdown and delayed labour data.

The dollar index eased slightly after a sharp two-day rally, while major currencies traded in narrow ranges. Market focus remained on the outlook for U.S. growth, central bank policy signals, and political developments across global markets.

Dollar Holds Gains as Fed Outlook Supports Greenback

The greenback has remained on firmer footing following positive U.S. manufacturing data that pointed to a return to expansion, reinforcing confidence in the broader U.S. growth narrative.

Investors have also continued to price in a more cautious approach to interest rate cuts after U.S. President Donald Trump nominated Kevin Warsh as the next Federal Reserve chair, a move widely seen as reducing the likelihood of aggressive monetary easing.

Analysts noted that the combination of resilient economic data and a steadier Fed outlook helped ensure the dollar holds gains, even as uncertainty lingered around fiscal negotiations in Washington.

Aussie Jumps After RBA Restarts Rate-Hike Cycle

In Asia-Pacific markets, the Australian dollar surged after the Reserve Bank of Australia raised interest rates for the first time in two years, catching some investors off guard.

The RBA lifted its cash rate by 25 basis points to 3.85%, citing persistent inflation pressures and signalling that further tightening may be needed. The decision triggered a sharp rally in the Aussie, which also strengthened against the yen as traders increased bets on additional rate hikes later this year.

The New Zealand dollar also advanced, tracking broader strength across commodity-linked currencies.

Yen, Elections and Global Risks Shape FX Outlook

Meanwhile, the yen stabilised after recent losses, as Japan’s finance minister downplayed remarks by Prime Minister Sanae Takaichi on the benefits of a weaker currency. Markets remain sensitive ahead of Japan’s upcoming lower house election, with investors wary that a strong result for the ruling party could open the door to expanded fiscal stimulus.

Geopolitical risks eased slightly after the United States announced a trade deal with India and confirmed plans to resume nuclear talks with Iran, developments that helped support risk sentiment across global markets.

Despite the calmer backdrop, strategists warned that political uncertainty and central bank divergence could continue to drive volatility in currency markets in the weeks ahead, even as the dollar holds gains against its major peers.