The U.S. dollar held steady near a three-month high on Tuesday as hopes for aggressive Federal Reserve rate cuts this year fade, while the Australian dollar rallied after the Reserve Bank of Australia (RBA) indicated another rate hike may be on the cards.

The RBA kept rates unchanged at 4.35% Tuesday post-meeting, matching forecasts but said an additional increase might be required to rein in inflation. Markets had expected cuts beginning in June but now see August as more likely, aligning with economist predictions that the RBA will avoid easing until late 2023.

The Aussie dollar climbed 0.44% to $0.6517, retreating from Monday’s 2-1/2 month lows. The Kiwi dollar followed, adding 0.23% to $0.6069. The U.S. dollar index edged down to 104.32 after hitting 104.60 Monday, its highest since November.

Recent upbeat U.S. data has dashed hopes for early Fed cuts, with markets now pricing just a 16% chance of a March trim versus 69% in early January. Only 115 basis points of easing are foreseen in 2024, half what was anticipated last month.

Solid jobs and services figures suggest the U.S. economy remains tough, backing the Fed’s hawkish stance. Chair Jerome Powell has joined fellow policymakers in dispelling predictions of steep rate cuts.

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The euro was little changed at $1.0750. Sterling clawed back some losses trading at $1.2565 by 07:15 GMT. The yen stood at 148.42 per dollar, after touching a six-week low.