EUR (1.121) ▲

▪ Despite a flight-to-quality triggered by the worsening COVID- 19 situation in the US, EUR continued its rally against the USD on the back of the reopening of EU economies and despite reaffirmation of dovish stance by the ECB.

▪ EUR may continue its upward momentum in July due to investors' optimism over improving COVID-19 situation in most European countries. However, rising risk of a stalled USEU trade talks is expected to put some pressure on the bloc's currency.

GBP (1.227) ▼

▪ GBP weakened marginally against USD as a record monthly GDP contraction of 20.4% in April erased early gains made against the dollar. In addition, BoE’s QE measure was also deemed insufficient by investors, weighing on the sterling.

▪ GBP will likely weaken in July as Brexit trade negotiations appear static; without a deal, Britain will fall back to on an unfavourable World Trade Organisation terms in 2021. Continued talks of BoE introducing negative interest rates are also expected to cause the pound to decline.

AUD (0.685) ▼

▪ AUD strength in June was mainly due to a surge in iron ore prices, amid a recovery in China’s factory activity, and RBA’s optimistic view of a shallower economic downturn. It offsets Fed’s dovish economic outlook and fear of a 2nd wave of COVID-19 infection.

▪ Its bullish momentum is expected to fade with a build-up of risk-off mode driven by a resurgence of COVID-19 cases locally, as well as in China, the US and South Korea. The resulting re-tightening of containment measures dampens economic growth recovery.

NZD (0.641) ▼

▪ NZD strengthened in June against USD, backed by a supportive domestic environment as it succeeded in containing the COVID-19 pandemic. Weaker USD further uplift NZD’s strength.

▪ Apart from concerns over COVID-19 resurgence, the RBNZ dovish statement after leaving its key interest rate unchanged at 0.25% along with hints of additional QE and possibility of pushing interest rates to negative territory are factors that would weigh on NZD going forward.

Source: Kenanga Research - 1 Jul 2020