▪ Despite a surprise 25 basis points overnight policy rate hike by the BNM and a better-than-expected 1Q21 GDP performance (5.0% YoY; Consensus: 4.0%), the ringgit failed to outpace the strong USD uptrend as the USD index (DXY) climbed to above the 104.0 level (May 12) for the first time since Dec 2002 amid a hotter-than-expected US CPI reading (8.3% YoY; Consensus: 8.1%). On top of that, the ringgit was also dragged by a weaker yuan due to an acceleration in China’s capital outflows.
▪ The combination of a global economic pessimism and the ongoing Fed's quantitative tightening are expected to continue to push global demand for the safe-haven USD, further weakening risk-on assets such as the ringgit. For this week, the local note may continue to trade near the 4.40 psychological threshold and will be mainly influenced by the Fed Powell’s speech and the direction of the yuan. The ringgit may benefit if the Fed strikes a less hawkish tone and if the PBOC act to stabilise yuan.
▪ Based on our 5-day EMA, MYR may strengthen marginally by 0.28% and trade around the 4.386 level this week.
▪ Technically, MYR is expected to reverse some of its losses against the USD this week amid a potential recovery in risk appetite. Nevertheless, the USDMYR pair may continue to face heightened volatility and trade between (S2) 4.370 – (R2) 4.413.
Source: Kenanga Research - 17 May 2022