EUR (1.228) ▲

▪ EUR extended its rally in December and reached above the 1.22 level for the first time since March 2018 on the back of broad dollar weakness as evidenced by the weakening DXY (Average Dec: 90.5; Nov: 92.6). In addition, stronger-than-expected EU economic data has provided additional support for the bloc’s currency.

▪ EUR is expected to trade in a tight range with an upside bias against the USD this month, supported by global economic recovery optimism and further USD weakness. The movement of the EUR will be influence by US stimulus situation and EU COVID-19 condition.

GBP (1.361) ▲

▪ GBP traded higher in December despite a record surge in COVID-19 infections across the UK, sending several cities into the highest level of lockdown restrictions. Notably, cable touched a 32-month high as the UK-EU trade negotiations reached an eleventh-hour agreement.

▪ GBP will likely trade higher this month against a weakening USD, although considerable volatility is expected. With the Brexit deal now finalised, investors will turn their attention towards the worsening British COVID-19 situation and key US developments, such as the Georgia runoff elections

AUD (0.767) ▲

▪ AUD advanced to its strongest level in 32 months on a surge in iron ore prices, upbeat economic data (e.g. 3Q20 GDP, unemployment) and announcement of an improved economic and fiscal outlook by Treasurer Frydenberg.

▪ AUD could climb higher on the back of a weaker dollar, robust economic growth in China and the start of vaccine rollout globally. However, the upside would be tapered by a deteriorating CN-AU relation and concerns over virus mutations.

NZD (0.720) ▲

▪ NZD rallied to a level last seen since April 2018 and one of the top performer currencies due to rising global optimism led by the COVID-19 vaccine rollout. In addition, strong 3Q20 GDP growth, USD weakness, and the diminishing prospect of negative interest rates also boosted the kiwi.

▪ NZD is expected to remain on an appreciating path on the back of global economic recovery progress and continued broad-based decline in USD.

Source: Kenanga Research - 4 Jan 2021