Fundamental Overview

▪ Bank Negara Malaysia's fourth consecutive 25 basis points overnight policy rate hike failed to boost the ringgit to appreciate against the strengthening USD, mainly due to Fed's Powell hawkish statement (market estimate for the terminal rate up to 5.25%) and Bank of England's dovish messages. The local note was also dragged down by the weakening of the yuan past the 7.30/USD threshold due to weak China’s PMI reading.

▪ The direction of the ringgit for next week would be mainly influenced by the October's US inflation readings and the outcome of the US midterm election on November 8. The ringgit's sell-off is likely to persist if there is an upside surprise in the CPI figures and if the market price in a lower terminal rate for Fed funds post-election (if Democrats lose congress). Nevertheless, the ringgit is expected to benefit from a potential improvement in the Malaysia 3Q22 GDP growth (KIBB: 10.9% YoY; 2Q22: 8.9%) and hover around the 4.73 to 4.76 against the USD.

Technical Analysis

▪ The USDMYR pair's outlook is neutral to bearish in the week ahead, with the pair expected to trade near its 5-day EMA of 4.739 as the pair appears to be reaching overbought territory.

▪ Technically, the DXY may shed some gains if US inflation readings turn out to be lower-than-expected, with an immediate support observed at (S1) 4.733. Inversely, a sustained rise above (R1) 4.750 may suggest an extension of the bullish USD trend.

Source: Kenanga Research - 4 Nov 2022