Dollar Holds Steady as Tax Vote Looms, Aussie Slips After RBA Rate Cut

The U.S. dollar remained flat on Tuesday, stabilizing after a week of losses amid investor caution ahead of a key congressional vote on President Donald Trump’s sweeping tax reform plan. The vote follows Moody’s downgrade of the U.S. credit rating last week over ballooning deficits, a move that has triggered unease in financial markets.

Despite Monday’s broad selloff, the dollar index edged just 0.1% lower, following a 0.6% drop the previous day. Market participants appear hesitant, as the Federal Reserve adopts a more cautious tone on interest rates. Atlanta Fed President Raphael Bostic said on Monday that the central bank might only cut rates by 25 basis points this year due to inflationary concerns tied to tariffs.

Meanwhile, the Australian dollar weakened 0.5% to $0.6423 after the Reserve Bank of Australia (RBA) cut its benchmark interest rate by 25 basis points to 3.85%. The RBA highlighted rising global uncertainty and ongoing trade tensions as major risks to economic growth.

The yen traded little changed at 144.75 per dollar, as investors eyed upcoming Japan-U.S. trade talks and the G7 finance ministers’ meeting in Canada. Japan’s Finance Minister Katsunobu Kato expressed hope for productive discussions on currency and bilateral issues with U.S. Treasury Secretary Scott Bessent during the summit.

Analysts remain skeptical about the dollar’s resilience. Rodrigo Catril of NAB said that mounting U.S. fiscal imbalances could drive further weakness in the dollar in the months ahead, as global investors demand higher returns to hold American debt. Trump’s proposed tax bill is expected to add $3 trillion to $5 trillion to the national debt over the next decade.

Adding to market uncertainty, the pause in tariff hikes by Trump offered only temporary relief. Japan has reaffirmed its strong anti-tariff stance, suggesting prolonged trade negotiations.

Amid growing concerns about U.S. economic fundamentals, Brexit-era partners Britain and the EU signed a significant defense and trade accord on Monday, signaling shifting global alliances and further complicating the trade landscape.