Dollar holds steady

The US dollar held steady on Tuesday ahead of a possible US government shutdown that could disrupt the release of the monthly jobs report this week, while the Australian dollar rallied after the central bank struck a cautious tone on inflation.

Investor focus is on the looming US shutdown. Government funding expires at midnight on Tuesday (0400 GMT) unless Republicans and Democrats agree to a last-minute temporary spending deal.

The US Labor and Commerce departments said their statistics agencies would halt economic data releases in the event of a partial government shutdown, including closely watched employment data for September.

The payrolls report, crucial for decision-making by policymakers at the Federal Reserve, is scheduled for Friday, and a delay could leave the central bank flying blind on the labour market.

Traders are currently pricing in 42 basis points of Fed easing by December and a total of 104 basis points by the end of 2026, about 25 bps less than levels seen in mid-September.

"If a shutdown is brief, the Fed will largely ignore it," said Elias Haddad, senior markets strategist at Brown Brothers Harriman.

"However, a prolonged shutdown (more than two weeks), increases the downside risk to growth and raises the likelihood of a more accommodative Fed."

MUFG strategist Lee Hardman said the dollar was coming under pressure from growing US political uncertainty. The dollar index , which has already fallen nearly 10 percent this year, was last down 0.1 percent on the day at 97.785.

Losses were most notable against traditional safe-haven currencies that carry lower yields, like the Japanese yen and the Swiss franc .

The yen shook off a bout of overnight weakness to leave the dollar down 0.4 percent at 148.02 yen. Investors considered the Bank of Japan's summary of opinions for its September meeting at which the central bank debated the possibility of a near-term rate hike. Markets show traders currently place a 60 percent chance on a December rise.