The Australian Dollar reached its highest level of the year on Tuesday as the central bank reaffirmed its commitment to controlling persistent inflation.

Meanwhile, the Yuan rose to a 16-month high following the announcement of new stimulus measures from China.

As widely forecast, the Reserve Bank of Australia (RBA) held interest rates steady and said it “remains resolute in its determination to return inflation to target.”

“The RBA's decision today amounts to another hawkish hold, which fits our view that it's still too early for a dovish pivot,” said Tony Sycamore, an analyst at IG.

“However a shift can occur very quickly ... and we think that the possibility of a rate cut in December is now underpriced.”

In addition, the Australian Dollar, which is sensitive to the outlook for China's economy, received further support from the stimulus measures announced by the People's Bank of China, Reuters reports.

The Aussie rose as much as 0.46% to $0.68695, marking its strongest level since 28th December.

However, it later trimmed gains to $0.68435 after RBA Governor Michele Bullock mentioned that a rate hike was not explicitly discussed during the meeting.

China's new stimulus measures, including a planned 50 basis point cut to banks' reserve requirements, indications of possible further easing in lending rates, and support for the property market, helped strengthen the Yuan. 

Although it initially weakened in offshore trading following the announcement of the rate cuts, it then steadily rose, gaining as much as 0.38% to reach 7.0310 per Dollar as attention shifted to the potential growth benefits.

“China needs a lower-rate environment to boost confidence,” according to Gary Ng, senior economist at Natixis. “With a more dovish Fed, China may be more willing to start a new round of laxer policy cycles.”

Elsewhere, the Euro sought to stabilise after a nearly 0.5% decline overnight, driven by weak business activity surveys that suggested the possibility of further rate cuts. It remained relatively unchanged at $1.1117. 

A survey from S&P Global revealed a significant contraction in eurozone business activity this month, with the region's dominant services sector stagnating and a further decline in manufacturing accelerating.

Meanwhile, Sterling climbed to a new 2.5-year high when the Bank of England adopted a much less dovish stance than the Federal Reserve or European Central Bank last week. It increased by 0.09% to $1.3360, earlier reaching $1.3366, its highest level since March 2022.