The ringgit tested 4.78 amid USD strength as markets reprice their rate outlook. We note that the MYR saw weakness in the past week, where the USD/MYR pair rose to test the 4.780 level. There were several reasons for the MYR weakness, including stronger USD as global markets pushed back against a US Federal Reserve (Fed) faster-than-expected interest rate cuts coming this year and volatility in global markets amid the Fed rate cut repricing, which led to sentiment swayed against emerging market (EM) currencies.

We are pricing in weaker ringgit over the short-term but maintain our view for the longer time horizon. Timely indicators showed that the markets as a whole have already toned down their aggressive US Fed rate cut narrative and, perhaps, become more wary in betting weaknesses in the US economy to materialise quickly. As such, we revise our MYR projections for the first three quarters of 2024 to be weaker than our previous projections.

We remain optimistic that there should be support for MYR past short-term volatility. We think volatility and USD strength will not last past the short term, and the DXY should come down in the medium term. This is due to the Fed rate cut speculation dominating market trading and FX Forward points hovering in the negative territory. In terms of the fundamental strength, the ringgit is poised to gain further due to Malaysia's economic condition.

Source: AmInvest Research - 19 Feb 2024