EUR (1.219) ▲

▪ EUR rallied to a five-month high against the weakening USD, primarily due to the Fed's status quo on the monetary policy front. The bloc's currency managed to extend April's gains due to Europe's accelerated vaccination drive and continued global economic recovery, fuelling demand for the risk-on currency.

▪ EUR may continue its rally against the weakening USD if the Fed remains calm and continue its USD120.0b/month bond-buying program. The single currency will continue to be supported by Europe's improving COVID-19 condition due to its swift vaccination campaign. However, the expectation that the ECB will extend its asset purchases on 10 June may limit EUR’s further upside.

GBP (1.417) ▲

▪ GBP strengthened last month against a weakened USD. The sterling received support from the UK’s successful ongoing vaccine campaign and the relaxation of several restriction measures. Cable was also lifted by the unemployment rate dropping to 4.8% in March and headline inflation rising to 1.5% in April.

▪ GBP may continue to strengthen this month, as the UK’s vaccination progresses and with nationwide lockdown restrictions set to end on 21 June. However, a recent rise in COVID-19 cases has raised fears concerning a more infectious virus strain; should this cause a delay to reopening plans, the GBP will likely face pressure.

AUD (0.774) ▲

▪ AUD was broadly stable as pressure from inflationary fears and the suspension of economic dialogue between China and Australia equally offset support from RBA’s growth upgrade and a lower-than-consensus US jobs data.

▪ AUD is expected to trade higher on strong commodity prices, but with the upside limited by a lockdown in Victoria amid a resurgence of Covid-19 cases.

NZD (0.726) ▲

▪ NZD closed higher in May, mainly attributable to positive economic data such as higher building permits and a rebound in retail sales, which beat market expectations. In addition, the Reserve Bank of New Zealand (RBNZ) signalled a rate hike in the second half of 2022, sending the kiwi high to a level last seen in March.

▪ NZD is expected to further strengthen this month on hawkish RBNZ and further global vaccination progress. Nonetheless, the upside bias would be limited depending on the outcome of US FOMC meeting.

Source: Kenanga Research - 1 Jun 2021