Dollar under pressure as oil prices slump, Australia rate decision awaited

The dollar weakened alongside oil prices on Tuesday, as traders waited for the Reserve Bank of Australia's decision on interest rates. Brent crude futures fell more than 7% on Monday, marking their steepest single-day decline in months, following Iran's claim that dialogue with the US to end their eight-month conflict was ongoing.

Falling energy costs helped calm inflation worries and reduced longer-term US Treasury yields. The benchmark 10-year Treasury yield remained steady at 4.9145%, while the 30-year bond yield also stayed flat at 5.2868%. Both yields had dropped to their lowest levels in nearly two months the previous day. The dollar index, which gauges the currency against a basket of currencies including the yen and euro, briefly traded at 101.76, a one-month low on Monday.

Meanwhile, an AI-driven stock market downturn continued, dampening risk appetite and providing some support to the dollar. However, concerns over US midterm elections remained, as the dollar was viewed as a safe-haven currency. Oil relief is increasing, but other factors are lagging behind, according to Sim Moh Siong, FX strategist at OCBC.

Multiple central banks are set to release policy statements later in the week, with the Reserve Bank of Australia expected to raise the official cash rate by 25 basis points to 4.85% on Tuesday, the highest level since December 2008. This would mark five rate hikes this year, totaling 125 basis points.