Risk appetite has firmed in the Asian session, as concerns stemming from the G20 Finance Ministers and Central Bank Governors meeting proved to be unwarranted. Market participants were worried that that G20 would push through a coordinated exit from policies aimed at supporting the global economy. While there was some language added to the final communiqué, most agreed that a single strategy would be untenable, considering the diverse economies in question. Interestingly, no mention of the Dollar's reserve currency status made it to the final release. While FX markets were ready for a timid meeting, the removal of any event risk has been risk positive. Asia equity markets traded higher, as any lingering apprehension faded away. European equity indexes were able to capitalize on the growing optimism and opened higher. An encouraging sign for risk seekers was the steep decline of the VIX, which now is trading around the 25 handle. With the US off for the Labor Day holiday, we would expect markets to flatten out as the day progresses. Markets consensus surrounding Friday US labor data seems to be that while unemployment jumped to 9.7% (NFP better than expected at -216k) conditions have begun to stabilize. Expectations also supported risk correlated trading. With a light calendar in the Eurozone this week, participants will be looking towards the commodity bloc and sterling to set the tone. AUD has been on a tear the last few sessions, penetrating the.08490 resistance. With all the important labor market data, housing finance and retail sales on the docket, trading will be watching for any indicator that the RBA will need to push up interest rate hikes. In addition, with a data from China (loan figures) also set to release, a better than expected figure could give the AUD further support. In New Zealand, the RBNZ should provide some fireworks. While the central bank is expected to hold rate steady, markets are split on if policy makers shift their easing bias to neutral (NZD positive). And in the UK, the BoE changes in policy will be the core drive to sterling pricing. The key will be if the MPC votes to expand the asset purchase program. Recent rhetoric by members on the question of then to withdrawal and languishing Q2 GDP figures, seems to suggest further expansion in the asset purchases facility. A potential controversial move that would spark sterling weakness, seen during the last unexpected expansion. And the final G10 central bank will be the BoC, which we expect to hold rates and keep any new unconventional polices tightly under wraps.
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