The DXY (USD) index edged lower yesterday to 95.83 from 95.99 on more stable markets. The G20 meeting over the weekend sought to play down the recent China-led market volatility as a headwind. With the Chinese yuan stable around 6.36 against the USD, attention has turned to possibly more stimulus from China to bolster growth.

The Korean government announced yesterday that budget deficit would be widened to 2.3% of GDP in 2016 from 2.1% in 2015 to cushion the economy from China's slowdown. US benchmark stock indices were up 2.4-2.7% in the overnight session. US bonds lost some of their safe haven appeal; the 10Y yield firmed to 2.1828% from 2.1244%.

Similarly, both USD/JPY and EUR/USD are testing their resistances at 120 and 112 respectively. Japan and Eurozone also reported better-than-expected 2Q GDP numbers, but only marginally.

AUD/USD also returned above 0.70 on improved sentiment.

The implied yield on 90D bank bill rose above 2% on Monday, unsure if the Reserve Bank of Australia (RBA) will cut rates a third time this year. RBA Deputy Governor Philip Lowe will be speaking at an economic event today. Lowe does not believe that the economy should not rely on monetary policy as the main driver for growth, especially by encouraging more borrowing to boost consumption. Here, he is of the opinion that the higher house prices not only do not boost consumer spending as much as before, but poses more economic risks because of riskier household balance sheets. Apart from rates, it will also be interesting to see if Lowe still favors more AUD depreciation after its recent fall.

Yet, market remains cautious, mindful that gains could evaporate easily as they did last Friday. The FOMC meeting is still around the corner on 17 September. There will be a press conference by Fed Chair Janet Yellen who has been absent throughout the recent volatility. The market is still mindful that the USD could reassert itself once it senses higher US rates are imminent.