EUR (1.178) ▲

▪ EUR strengthened to its highest level since mid-June 2018 as the EU leaders reacheda EUR750.0b COVID-19 recovery deal after four days of fractious talks in July. In addition, falling US dollar index (end-Jul: 93.35; end-Jun: 97.39) on the back of grim US economic data and worsening US COVID-19 situation has helped to further elevate the EUR.

▪ Despite end-month profit taking, EUR may continue its uptrend in August and trade around 1.18-1.19 largely on the back of its relative success in battling the COVID-19 pandemic and underlying long-term USD weakness.

GBP (1.309) ▲

▪ GBP rebounded against the dollar to its highest level in over four months. The sterling advanced largely due to USD weakness, but also to improving sentiment on local vaccine news and unexpectedly positive retail sales and PMI data.

▪ GBP is expected to rise marginally in the near term, as greenback weakness continues. However, this could be outweighed by pressure from increasingly drawn-out Brexit negotiations, deteriorating UK-CN relations, and a tepid COVID-19 outlook as some UK regions return to partial lockdown.

AUD (0.714) ▲

▪ AUD surged in July to its strongest level in 2020 on favourable vaccine headlines, upbeat economic data and the RBA’s optimism. The strength was partially capped by a deterioration in the US-CN relation and re-implementation of a stricter lockdown in Melbourne.

▪ AUD is expected to gain further on continued dollar sell-off as the Fed reaffirmed its dovish stance and the prospect of a deteriorating economic recovery amid rising COVID-19 cases.

NZD (0.663) ▲

▪ NZD strengthened in July, largely thanks to progress on COVID-19 vaccination trials and dollar weakness despite RBNZ Deputy Governor Geoff Basc’s cautiously optimistic remark on domestic economic recovery.

▪ NZD may edge up further on the back of US Fed dovishness and the underlying US dollar weakness. However, escalating US-CN tensions may limit its gain going forward.

Source: Kenanga Research - 3 Aug 2020