EUR (1.110) ▲

▪ EUR rallied to a five-month high against the USD on the resumption of Franco-German EU integration engine and the bloc's announcement of a EUR750.0b recovery package. Furthermore, EUR finds additional support on the positive development of the COVID-19 vaccine.

▪ The positive sentiment around the EU pandemic emergency purchase programme, coupled with ECB hints of possible additional easing at its policy meeting this week, is expected to push EUR to trade higher against the USD.

GBP (1.234) ▼

▪ GBP depreciated against the USD (1.23; Apr: 1.25) on news that Bank of England (BoE) may embark on negative interest rate policy. However, it was partially supported by constructive risk climate, in particular, Prime Minister Boris Johnson’s announcement of restarting the economy in June.

▪ GBP may continue to lose its strength this month weighed by the Brexit trade negotiations ahead of 1 July deadline, and the possibility of BoE officials would vote to expand quantitative easing at the next MPC meeting on 18 June.

AUD (0.667) ▼

▪ AUD strengthened as favourable vaccine news and signs of economic recovery overshadowed escalating US-CN spat over Hong Kong, trade and COVID-19 origin, China’s sanctions on imports from Australia triggered by Australia’s demand for international investigation on virus origin and dovish RBA minutes.

▪ AUD to trade lower this month as risk appetite would be pressured further by expectations of more retaliatory actions from both the US and CN surrounding the planned national security law for Hong Kong.

NZD (0.621) ▲

▪ NZD appreciated on COVID-19 vaccine optimism, establishment of a NZD50b recovery fund and RBNZ Governor’s reluctance to adopt negative rates in the near term. These offset downside pressure from the US-CN turmoil and doubling of quantitative easing.

▪ NZD could be lifted higher given its success in combatting the pandemic and reopening the economy, albeit partially capped by worsening US-CN relation.

Source: Kenanga Research - 1 Jun 2020