EUR (1.194) ▲

▪ EUR rallied to around the 1.19 level amid aggressive dollar self-off as US Congress failed to forge another COVID-19 stimulus package in August. In addition, better than expected German economic data coupled with COVID-19 vaccine optimism has helped to lift the bloc's currency.

▪ EUR may continue to trade higher in September as Fed's new inflation target framework is expected to prompt the USD to weaken further. However, Euro's strength could be short-lived as surging European COVID-19 infections may trigger a lockdown reimplementation.

GBP (1.337) ▲

▪ GBP rose against the USD to its highest level this year, bolstered by improving UK growth forecasts and fed-fuelled dollar weakness. The pound was also lifted by positive unemployment data (Jun: 3.9%), resulting from the government’s furlough scheme.

▪ The sterling may further strengthen due to sustained USD weakness. Nevertheless, GBP faces pressure from increasing local COVID-19 infections, stalling UK-EU Brexit trade talks, and the October expiry of the furlough scheme. Furthermore, should any issues arise from the September reopening of schools, GBP will likely weaken.

AUD (0.739) ▲

▪ AUD surged to its strongest level since December 2018 on RBA’s optimism about the economy, rising iron ore prices and a shift in Fed’s monetary policy framework. The rise was partially slashed by a stricter lockdown in Melbourne and worsening US-CN technology war.

▪ AUD is expected to appreciate further amid rising commodity prices, signs of a flatter COVID-19 curve in Victoria and continued impasse over the US stimulus package.

NZD (0.674) ▲

▪ NZD edged higher in August buoyed by a weakening USD on the US Fed policy shift, which pointed to lower-for-longer interest rates. The performance of Kiwi was also associated with New Zealand handling the COVID-19 pandemic despite Reserve Bank of New Zealand (RBNZ) dovish tone anddecision to expand QE.

▪ NZD is expected to sustain its bullish momentum in September on continued US dollar weakness, but the upside would be limited as RBNZ signalled the possibility of going into a negative interest rate policy.

Source: Kenanga Research - 1 Sept 2020