The Australian Dollar (AUD) recovers its daily losses as the US Dollar (USD) weakens amid declining US Treasury yields on Tuesday. Investors eagerly anticipate Australia's monthly inflation report on Wednesday, as it's expected to offer crucial insights into the future course of monetary policy after the Reserve Bank of Australia's (RBA) recent hawkish rate cut.

The People's Bank of China (PBOC) injected CNY300 billion on Tuesday via the one-year Medium-term Lending Facility (MLF), maintaining the rate at 2%. Additionally, the PBOC injected CNY318.5 billion through seven-day reverse repos at 1.50%, consistent with the prior rate. Given the close trade relationship between China and Australia, any shifts in the Chinese economy could impact the Australian Dollar.

According to a gated Bloomberg report early Tuesday, the Trump administration is aiming to tighten chip export controls on China. The US is considering stricter restrictions on Nvidia chip exports and may impose additional limitations on Chinese companies like SMIC and CXMT.
The AUD/USD pair faces challenges due to rising risk sentiment as US President Donald Trump said late Monday that sweeping US tariffs on imports from Canada and Mexico "will go forward" when a month-long delay on their implementation expires next week. Trump claimed that the US has "been taken advantage of" by foreign nations and reiterated his plan to impose so-called reciprocal tariffs.

The AUD received support as Australia's close trading partner China released its annual policy statement for 2025 on Sunday. The statement details strategies to advance rural reforms and promote comprehensive rural revitalization. Additionally, China's state-supported developers are aggressively increasing land purchases at premium prices, driven by the government's relaxation of home price restrictions to revitalize the troubled property market.

Australian Dollar appreciates as US Dollar remains tepid amid falling yields
The US Dollar Index (DXY), which measures the USD against six major currencies, falls to near 106.50 with 2-year and 10-year yields on US Treasury bonds declining to 4.14% and 4.37%, respectively, at the time of writing.
Federal Reserve Bank of Chicago President Austan Goolsbee remarked on Monday that the US central bank needs greater clarity before considering interest rate cuts.
President Trump signed a memorandum on Friday instructing the Committee on Foreign Investment in the United States (CFIUS) to limit Chinese investments in strategic sectors. Reuters cited a White House official saying that the national security memorandum seeks to encourage foreign investment while safeguarding US national security interests from potential threats posed by foreign adversaries like China.
The US Composite PMI fell to 50.4 in February, down from 52.7 in the previous month. In contrast, the Manufacturing PMI rose to 51.6 in February from 51.2 in January, surpassing the forecast of 51.5. Meanwhile, the Services PMI declined to 49.7 in February from 52.9 in January, falling short of the expected 53.0.
US Initial Jobless Claims for the week ending February 14 rose to 219,000, exceeding the expected 215,000. Meanwhile, Continuing Jobless Claims increased to 1.869 million, slightly below the forecast of 1.87 million.
The Reserve Bank of Australia (RBA) lowered its Official Cash Rate (OCR) by 25 basis points to 4.10% last week—the first rate cut in four years. Reserve Bank of Australia (RBA) Governor Michele Bullock acknowledged the impact of high interest rates but cautioned that it was too soon to declare victory over inflation. She also emphasized the labor market's strength and clarified that future rate cuts are not guaranteed,despite market expectations.

Source: Fxstreet