EUR (1.109) ▼

• EUR weakened to near the 1.08 against the USD on March 7, a level last seen in May 2020. The sharp depreciation was mainly due to the Russian invasion of Ukraine, Europe's energy crisis and monetary policy divergence between the ECB and the Fed. However, moving towards the end of the month, the bloc's currency climbed to near the 1.11 zone as the USD index fell below the 99.0 level amid an improvement in risk appetite.
• Pressure is expected to continue on the EURUSD pair due to the ongoing Russia-Ukraine war and continued dovishness of ECB despite sky-rocketing inflation readings in the EU. High commodity prices to weaken consumer spending and slow Europe’s recovery from the pandemic, further weakening the bloc’s currency.

GBP (1.312) ▼

• GBP weakened significantly against the USD in March, on continued concerns regarding the Russia-Ukraine conflict and hawkish comments from US Fed Chair Jerome Powell. The pound was pressured by further monetary policy divergence, as the Bank of England (BoE) had taken a dovish stance at its March policy announcement, due to the negative impact of higher inflation on UK’s economy, despite raising its policy rate for the third consecutive time.
• GBP may continue to depreciate this month, as the prevailing risk-off sentiment favours the safe-haven USD. Likewise, the divergent paths between the BoE and the US Fed will likely continue to drive sentiment in the nearterm.

AUD (0.749) ▲

• AUD rallied for the second straight month against the USD, reaching its highest level since October 2021 despite heightened geopolitical risk from the RussiaUkraine war and the US Fed tightening cycle. The performance was mainly associated with surging raw material prices, reopening of borders, and China’s stimulus that would hopefully fuel steady demand for Australian exports. However, the upside bias was capped by concern about China’s lockdown.
• AUD may continue to rally in April as commodity prices are expected to remain elevated. Coupled with supply shock due to the ongoing global supply chain disruptions, triggering higher inflation at home, it may raise the probability for the Reserve Bank of Australia (RBA) to embark on a faster rate hike.

NZD (0.694) ▲

• NZD continued to rally against the USD in March as New Zealand’s 4Q21 GDP growth rebounded by 3.0%, reflecting the impact of ending its zero-COVID-19 policy. This supports further rate hike expectations given the elevated inflation rate and labour market tightening. Nonetheless, the upside bias was partially capped by the Russia-Ukraine war and the US Fed's hawkish tilt.
• NZD may continue to rally amid the gradual reopening of borders for vaccinated tourists from April 13. Furthermore, market expectations of 50 basis points (bps) rate hikes by the Reserve Bank of New Zealand in April will further support the kiwi currency as the spike in global oil prices threatens consumer prices at home

Source: Kenanga Research - 1 Apr 2022