EUR (1.189) ▼

▪ EUR declined to below the 1.20 level against the USD last month as investors sought shelter in the safe-haven dollar following the Fed's unexpected hawkish pivot on June 16, almost a week after the ECB stuck to its dovish stance. Despite a slew of strong economic data from the Eurozone post-FOMC, the bloc's currency remained pressured by a stronger USD on the back of Delta COVID-19 variant concerns.

▪ EUR may continue its downtrend and trade slightly lower in July as the ECB is likely to stick to its dovish message on inflation and continue to maintain its bond purchases at an elevated pace. Furthermore, anticipation of a strong US jobs report and fears over the Delta virus variant could further weigh on the EUR.

GBP (1.386) ▼

▪ GBP weakened against the USD in June, as the UK’s full economic reopening was delayed by a month amid the emergence of the Delta variant of COVID-19. Furthermore, the sterling tumbled following the US Fed’s surprising hawkish shift at the last FOMC meeting, which boosted the dollar.

▪ GBP may continue to decline this month as the ongoing spread of the Delta variant threatens to further delay the UK’s full reopening. Additionally, unlike its US counterpart, the Bank of England continues to maintain a dovish tone, which may weigh on Cable.

AUD (0.750) ▲

▪ AUD plunged in June, its lowest level since November 2020 due to strengthening USD on the back of hawkish US Fed amid inflation fears, while Reserve Bank of Australia reiterated its dovish stance. Renewed COVID19 lockdowns and Delta variant fear further weighed on the currency.

▪ AUD could rebound in July if the government manages to contain the surge of new infections and gradually lift the lockdown. Rising commodity prices will further boost the currency as global economy gradually reopen on wider vaccine rollout. However, the upside would be limited due to the expected greenback appreciation.

NZD (0.699) ▲

▪ NZD closed sharply lower in June following the US Fed's hawkish turn and further weighed by the risk sentiment as Delta variant emerged in many countries. Nonetheless, the downside was capped following positive news on higher-than-expected 1Q21 GDP growth (2.4% YoY; consensus: 0.9%).

▪ NZD is expected to reverse its trend in July, strengthening against the greenback on the back of a hawkish RBNZ. Nonetheless, the upside bias would be limited depending on the global and regional COVID-19 situation.

Source: Kenanga Research - 1 Jul 2021