AUD/USD is retreating from a five-month high of 0.6493 reached on Monday, sliding to around 0.6450 during Asian trading on Tuesday. The decline was due to a strengthening of the U.S. dollar (USD) ahead of the Federal Reserve's (Fed) monetary policy decision on Wednesday.

While the Fed is widely expected to keep interest rates unchanged, investor attention remained focused on comments from Chairman Jerome Powell, especially amid uncertainty related to tariffs and growing pressure from President Trump to cut rates.

Separately, Treasury Secretary Scott Bessant said Monday the U.S. is "very close to making some deal," echoing comments from Trump over the weekend that suggested a trade deal could be reached soon. Trump confirmed that negotiations were still ongoing but ruled out a meeting with Chinese President Xi Jinping this week. Meanwhile, China’s Ministry of Commerce said on Friday it was reviewing a U.S. proposal to restart trade discussions.

On the data front, the US ISM Services PMI rose to 51.6 in April, beating expectations for 50.6 and improving from 50.8 in March. The new orders index climbed to 52.3 (from 50.4 previously), while the services employment index improved to 49 (from 46.2 previously).

In Australia, the Australian dollar (AUD) was supported by the fact that Prime Minister Anthony Albanese successfully secured a second three-year term in office at the 2025 federal election, marking a significant development in Saturday's election results. Albanese promised a "disciplined" government focused on cost-of-living aid, renewable energy, tax cuts, housing and health care.

Westpac's chief executive said the "worst is over" in terms of consumer and business stress and that demand for M&A funding was stronger than expected. The bank predicts the Reserve Bank of Australia (RBA) will cut interest rates by 25 basis points at its May 19-20 meeting.

Meanwhile, National Australia Bank (NAB) has raised its year-end AUD/USD forecast to 0.70, citing a continuation of the dollar’s bear market. NAB expects the pair to remain around 0.65 by mid-year, gradually rising to 0.67 in December. The bank attributed the outlook to changes in interest rate differentials and expects the RBA to cut rates by 50 basis points in May.