Forex Today: Markets remain cautious despite easing of Covid curbs in China, eyes on BOC

Here is what you need to know on Wednesday, December 7:

Choppy market action continues mid-week as investors refrain from taking large positions ahead of next week's highly-anticipated central bank meetings. Investors remain cautious despite China's decision to move away from the zero-Covid policy and the US Dollar preserves its strength against its risk-sensitive rivals. The European economic docket will feature the third-quarter Gross Domestic Product. Later in the day, third-quarter Nonfarm Productivity and Unit Labor Costs data from the US will be looked upon for fresh impetus. Finally, the Bank of Canada (BOC) will announce its interest rate decision and release the monetary policy statement.

China announced earlier in the day that positive cases with mild symptoms or who are asymptomatic will be allowed to quarantine at home for seven days rather. "Any form of mobility-control should not be implemented," the Chinese government noted in a statement and explained that mass PCR testing will be largely abandoned and be restricted to hospitals, nursing homes and schools. Despite this development, the Shanghai Composite Index is down 0.4% and Hong Kong's Hang Seng Index is losing nearly 2%. Meanwhile, US stock index futures trade flat on the day following the two-day slide witnessed in Wall Street's main indexes.

USD/CAD climbed to a monthly high of 1.3677 on Tuesday and closed in positive territory for the fourth straight trading day. In addition to broad-based US Dollar strength, falling crude oil prices provided a boost to the pair by weighing on the commodity-sensitive Canadian Dollar. The BOC is expected to raise its policy rate by 50 basis points to 4.25%. Some experts see the BOC opting for a smaller 25 bps hike. In its previous policy statement, the BOC set its terminal rate at 4.25% and a 50 bps hike would bring the bank's tightening cycle to an end.

BOC Preview: Getting ready for a dovish pivot?

EUR/USD continued to edge lower on closed in negative territory on Tuesday before going into a consolidation phase at around 1.0450 early Wednesday. The data from Germany revealed that Industrial Production contracted by 0.1% on a monthly basis in October, beating the market expectation for a decrease of 0.5%.

GBP/USD stays on the back foot and continues to stretch lower toward 1.2100 in the European morning. The Halifax House Prices fell 2.3% on a monthly basis in November but this data had little to no impact on Pound Sterling's performance against its rivals. 

USD/JPY preserved its bullish momentum early Wednesday and climbed above 137.00. Bank of Japan (BoJ) Board Member Toyoaki  Nakamura said earlier in the day that it would be premature to tweak the monetary policy now with service prices remaining low.

Australian Bureau of Statistics reported during the Asian trading hours that the Australian GDP grew at an annual rate of 5.9% in the third quarter, falling short of the market expectation of 6.3%. AUD/USD edged lower after the data and was last seen trading slightly below 0.6700.

Gold price closed virtually unchanged at around $1,770 on Tuesday as the retreating US Treasury bond yields helped XAU/USD hold its ground despite the US Dollar strength. The pair continues to fluctuate in a narrow range near $1,770 early Wednesday.

Bitcoin extends its sideways grind near $17,000 into a seventh straight day on Wednesday. Ethereum struggles to find demand and loses over 3%, closing in on $1,200.