EUR (1.199) ▲

▪ EUR rallied by 2.90% from 1.16 in October to near 1.20 against the USD on improving risk sentiment due to promising COVID-19 vaccine news, as well as hopes of a smooth Biden transition. Furthermore, EUR finds additional support on the slowdown of Europe COVID-19 infections.

▪ EUR may break above the 1.20 level in December if EU leaders manage to reach a deal on the proposed recovery fund. Additionally, the bloc's currency may trade higher if Europe economic data points to a steadiness in the economy and the USD continues to weaken under a Biden administration.

GBP (1.333) ▼

▪ GBP strengthened considerably in November amid vaccine optimism and following the US presidential election. Vaccine breakthroughs lifted the sterling, even as UK-EU trade negotiations continued to stumble before the 31 December Brexit-transition deadline. Cable was also boosted by a falling USD, resulting from the US presidential election.

▪ GBP may weaken this month should the UK-EU trade negotiations collapse before the deadline. Nevertheless, the upcoming expiry of national lockdown, further vaccine advancement, and sustained USD weakness will likely limit GBP downside in December.

AUD (0.738) ▲

▪ AUD rose to its strongest level since September on Biden’s victory, vaccine progress and China’s economic recovery. These outweighed downside bias from the RBA’s AUD100b quantitative easing programme and a policy rate cut to a record low of 0.1%.

▪ AUD could trade higher on extended dollar weakness and vaccine optimism. However, the upside would be limited by a deteriorating CN-AU relation, marked by China’s decision to impose anti-dumping duty (107%- 212%) on Australian wine.

NZD (0.705) ▲

▪ NZD outperformed major currencies and strengthened to a level last seen in June 2018, boosted by the US election result and the COVID-19 vaccine hopes. The government calls to stabilise rising property prices that could change RBNZ’s monetary policy setting also send the kiwi higher.

▪ NZD may sustain its rally in the final month of 2020 on vaccine optimism and continued domestic economic recovery following its success in containing the pandemic.

Source: Kenanga Research - 1 Dec 2020