Fundamental Overview

▪ Even though the USDMYR pair breached the 4.40 psychological threshold for the first time in 26 months on May 19 due to Fed's Powell's hawkish comments and global recession fears, the ringgit managed to regain strength, up by 0.22% WoW by riding the yuan's coattails. The yuan gained more than 1.4% WoW against the USD due to PBOC’s five-year loan prime rate cut and Shanghai’s COVID-19 optimism. However, the MYR failed to appreciate against most major currencies due to lack of catalysts.

▪ The ringgit may weaken marginally against the USD around the 4.390 – 4.395 level due to the current risk-off sentiment and heighten market volatility amid fears over a global economic slowdown and rising inflationary pressures. The USD index may continue to trade near the 103.0 level for this week and is expected to trend higher if there is any hawkish surprise in the latest FOMC minutes. Nevertheless, the local note will continue to be supported by a stronger yuan (below 6.70 per USD).

Technical Analysis

▪ EMA technical indicator signals a reversal in the USDMYR trend, with the ringgit expected to depreciate by 0.10% against the USD.

▪ Hence, the USDMYR may test the 4.40-level again, moving towards the (R1) 4.399 – (R2) 4.410 range, which indicates an upside pattern for the greenback. Nonetheless, a continued rally towards the (S1) 4.384 level will reaffirm the ringgit’s strength.

Source: Kenanga Research - 23 May 2022