The AUD/USD pair recovers some intraday losses after sliding to near 0.6270 in Monday’s European session, but is still down almost 0.2%. The Aussie pair rebounds as the US Dollar (USD) surrenders gains and turns negative, with the US Dollar Index (DXY) falling back to near the five-week low of 107.20 from the intraday high of 107.75.

The USD Index attracted significant bids at the start of the week after United States (US) President Donald Trump proposed 25% tariffs on Columbia for not accepting military flights carrying deportees. The event prompted risks of a trade war, which increased US Dollar’s safe-haven demand.

However, the US Dollar retreated later when reports from the White House confirmed that the the Colombian government agreed to Trump’s terms of accepting illegal immigrants. After that, Trump put proposed tariffs on hold.

This week, the major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday. The Fed is almost certain to leave interest rates unchanged in the range of 4.25%-4.50%. Investors will pay close attention to the Fed’s guidance on monetary policy and policymakers’ view on Trump’s call for immediate rate cuts.

Meanwhile, the Australian Dollar (AUD) exhibits a weak performance against its major peers, with investors focusing on the Q4 inflation data, which will be released on Wednesday. As measured by the Consumer Price Index (CPI), price pressures are expected to have grown by 2.5%, compared to the same quarter of the previous year, slower than 2.8% growth in the previous quarter. Quarter-on-quarter CPI is estimated to have grown by 0.3%, faster than a 0.2% increase in the third quarter of 2024.

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