Forex Today: Eyes on BoC policy decision, US data

Here is what you need to know on Wednesday, September 6:

The US Dollar Index (DXY) retreats early Wednesday after touching its highest level since March near 105.00 on the back of surging Treasury bond yields. Markets await the Bank of Canada's (BoC) policy announcements and August ISM Services PMI report from the US. The European economic docket will feature July Retail Sales and the Federal Reserve will release its Beige Book in the American trading hours.

Following a three-day weekend in the US, the 10-year US Treasury bond yield climbed above 4.2% on Tuesday and helped the US Dollar (USD) outperform its rivals. The bearish opening in Wall Street also helped the currency continue to gather strength. With major equity indexes in the US staging a rebound later in the session, DXY lost its momentum and went into a consolidation phase in the Asian trading hours. In the meantime, the Shanghai Composite and Hang Seng indexes found a foothold on Wednesday, following a two-day slide.

The data from Australia showed that the real Gross Domestic Product expanded at an annual rate of 2.1% in the second quarter. This reading followed the 2.4% growth recorded in the first quarter but came in better than the market expectation of 1.7%. Pressured by risk-aversion and the Reserve Bank of Australia's cautious tone on policy outlook, AUD/USD touched a fresh 2023-low of 0.6356 on Tuesday. Early Wednesday, the pair clings to recovery gains at around 0.6400.

EUR/USD dropped to a three-month low and came within a touching distance of 1.0700 on Tuesday. The pair edges higher in the European morning but stays below 1.0750. The data from Germany showed on Wednesday that Factory Orders contracted 11.7% on a monthly basis in July, compared to the market expectation for a decrease of 4%.

USD/JPY climbed above 147.00 and reached its highest level since November 2022. In response to ongoing Japanese Yen weakness, Japan's top currency diplomat Masato Kanda said that they are closely monitor the Foreign Exchange moves with a high sense of urgency and reiterated that all options for the FX moves are on the table. Meanwhile, “I believe the Bank of Japan (BoJ) must patiently maintain easy policy given very high uncertainty on outlook,” BoJ board member Hajime Takata said.

GBP/USD closed deep in negative territory on Tuesday amid broad USD strength. The pair struggles to stage a rebound on Wednesday and trades flat slightly above 1.2550. 

USD/CAD trades at its highest level in five months at around 1.3650 in the European morning. The BoC is widely expected to leave its key rate unchanged at 5% following the September policy meeting.

Following a quiet start to the week, Gold price turned south and declined below $1,930 on Tuesday as the 10-year US yield rose sharply. XAU/USD consolidates its losses near $1,925 in the early European session on Wednesday.