Fundamental Overview

▪ Despite Bank Negara Malaysia’s back-to-back 25 basis points overnight policy rate hike and strong domestic retail sales reading, the ringgit weakened near the 4.43 level for the first time since March 2020 against the strengthening USD. To note, the USD index (DXY) soared to above the 107.0 level (near 20-year high) last week due to hawkish FOMC meeting minutes, growing recessionary fears and strong US job growth.

▪ As market sentiment is expected to remain fragile amid weakening global growth outlook due to a faster-than-expected major central banks’ interest rate hikes, pro-cyclical currencies (i.e. ringgit) may continue to trade in a volatile manner and depreciate against the USD. Hence, the local note may likely hover around the 4.42-4.44 zone against the greenback as the DXY is expected to remain elevated around the 107.0 level, if US June CPI turns out to be higher-than-expected.

Technical Analysis

▪ Despite lack of pro-ringgit catalysts, our EMA indicator suggests that MYR may reverse its weakness and appreciate marginally against the USD by 0.06%.

▪ Technical-wise, the DXY may reverse its current uptrend if there is any risk appetite reversal, with an immediate support observed at (S1) 4.417. Conversely, a sustained rise above the (R1) 4.431 level may suggest an extension of the bullish USD trend.

Source: Kenanga Research - 12 Jul 2022