Forex Today: Dollar selloff picks up steam as risk flows dominate

Here is what you need to know on Tuesday, October 4:

Risk flows continue to dominate the financial markets early Tuesday and the dollar is having a difficult time finding demand with the US Dollar Index trading at its lowest level in over a week and pushing lower toward 111.00. Eurostat will release the Producer Price Index (PPI) data for August. Later in the day, August Factory Orders and JOLTS Job Openings will be featured in the US economic docket. Cleveland Fed President Loretta Mester and NY Fed President John Williams are scheduled to deliver speeches during the American trading hours.

Wall Street's main indexes opened decisively higher and registered impressive gains on Monday after the ISM Manufacturing PMI survey showed that price pressure continued to ease in the manufacturing sector and employment contracted modestly. According to the CME Group FedWatch Tool, the probability of one more 75 basis points (bps) Fed rate hike in November declined to 50% after this report. The benchmark 10-year US Treasury bond yield is down over 2% on the day after having declined 5% on Monday.

Meanwhile, reports suggesting that OPEC+ could reduce oil output by more than 1 million barrels per day provided a boost to crude oil prices and the barrel of West Texas Intermediate (WTI) gained 5% on Monday before settling above $83. 

During the Asian trading hours on Tuesday, the Reserve Bank of Australia (RBA) announced that it hiked its policy rate by 25 bps to 2.6% from 2.35%, compared to market expectation for a 50 bps rate increase. In its policy statement, the RBA reiterated that the size and timing of future rate rises will be determined by the data and outlook for inflation and the labor market. Although the initial reaction caused the AUD to weaken against its rivals, AUD/USD regained its traction as the RBA's policy action allowed the market mood to remain upbeat. As of writing, the pair was up 0.3% on the day at 0.6535.

RBA: Size, timing of future rate rises will be determined by the data and outlook for inflation, labor market.

EUR/USD capitalized on the broad-based dollar weakness and climbed to its highest level since September 22 near 0.9900 early Tuesday.

GBP/USD extended its rally on Tuesday and was last seen trading above 1.1400, rising nearly 1% on the day. On Monday, the pair gained 200 pips following the UK government's decision to reverse its plan to scrap the 45% rate of income tax for the highest earners.

Gold registered impressive gains on Monday and continued to push higher after having cleared $1,700. XAU/USD was last seen rising 0.6% on the day at $1,710.

USD/JPY lost its bullish momentum after having climbed above 145.00 on Monday and ended up closing the day in negative territory. As of writing, USD/JPY was virtually unchanged on the day at 144.55.

Bitcoin benefited from the improving risk mood and rose 3% on Monday. BTC/USD holds its ground early Tuesday and continues to edge higher toward $20,000. Ethereum is already up 5% since the beginning of the week but continues to trade below $1,400.