Fundamental Overview

▪ Despite Malaysia’s better-than-expected trade readings and a 1.2% fall in USD index (DXY) due to the European Central Bank’s (ECB) 50 basis points (bps) rate hike, the ringgit breached the 4.45 threshold for the first time since March 2017 against the USD. The weakness in the ringgit was partly attributable to the worsening COVID-19 cases in most part of Asia, especially China and growing Europe’s political risk.

▪ The local note may continue to trade above the 4.450 level against the USD as a potential 75 bps rate hike by the Fed may provide the DXY a knee-jerk boost. On top of that, lack of domestic catalysts, China’s economic uncertainty and weak global sentiment are likely to cap any upside for the ringgit. However, ECB’s determination to curb soaring inflation and the resumption of Nord Stream 1 flows may continue to buoy the EUR above parity and benefit the ringgit.

Technical Analysis

▪ Based on the EMA indicator, the ringgit is expected to appreciate marginally by 0.02% to 4.452 this week.

▪ Technically, the bias for the USDMYR pair has shifted to a neutral stance for this week, with the pair projected to trade in the range of (S2) 4.445 – (R2) 4.462. Nevertheless, the pair is expected to continue to trade above the 4.450 threshold as safe-haven buyers may continue to seek shelter in the greenback.

Source: Kenanga Research - 25 Jul 2022