Fundamental Overview

• Amid signs of easing tensions in the Middle East, the ringgit followed the expected trajectory, strengthening and stabilising within a narrow range of 4.776 to 4.780 against the USD this week. This uptick can largely be attributed to the improved risk sentiment among investors, leading to a softening in USD demand. Coupled with sluggish US PMI and lower-than-expected 1Q24 US GDP reading, the USD index (DXY) depreciated to below the 106.0 level, further contributed to the strengthening of the ringgit. Domestically, a stable inflation rate and ongoing support from authorities have significantly contributed to stabilising the ringgit.

• It is noteworthy that yesterday's release of weak US GDP growth (1.6% QoQ; Consensus: 2.5%), was accompanied by the 1Q24 core PCE, which rose to 3.7% QoQ (Consensus: 3.4%). This explains why the DXY did not weaken significantly and why the 10-year US Treasury rose above 4.70%. There is potential for a higher March core PCE reading tonight, which could keep the DXY close to the 106.0 level, leading to a weakening of the ringgit. The possibility of a higher inflation figure and still robust job report next week may prompt the Fed to maintain their higher-for-longer guidance, potentially pushing the ringgit to test the 4.80/USD level again. However, a hawkish hold and potential FX intervention by the Bank of Japan may help to limit the appreciation of the DXY.

Technical Analysis

• The technical outlook for USDMYR next week is neutral, with expectations for the pair to stay close to its 5-day EMA of 4.778.

• A hawkish recalibration in the Fed's monetary policy outlook may push the MYR above (R2) 4.782 and potentially test 4.800.

Source: Kenanga Research - 26 Apr 2024