Fundamental Overview

▪ Since Friday last week, the ringgit has been trading below the 4.40 threshold against the USD, mainly due to the downward correction in the USD index (DXY) below the 105.0 level amid Fed's less hawkish expectation and the continued strengthening of the yuan below the 7.00/USD level amid China's reopening optimism. On top of that, the local note was also buoyed by the increasing MY-US 10-year government bond yield premium.

▪ Even though the Fed is widely expected to reduce its pace of tightening (from 75 basis point (bps) to 50 bps) during its FOMC meeting next week, the ringgit may face depreciation pressure against the USD, mainly due to the increasing divergence between BNM-Fed policy rates. Looking beyond the FOMC meeting on deck, the ringgit's direction will also be mainly influenced by the ECB and BoE monetary policy decisions, in which, a bigger-than-expected rate hike may likely drag the DXY downward and benefit the local note.

Technical Analysis

▪ The USDMYR pair's outlook is neutral for next week, with the pair expected to trade near its 5-day EMA of 4.401 as the pair’s RSI has pushed above 20.0 (See ST Technical table).

▪ Technically, should there be any USD buying interest, the ringgit is expected to reverse its bearish position and trade around the (R1) 4.408 – (R2) 4.417 level. Conversely, a breach below the (S1) 4.379 level is needed to confirm MYR extended bullish bias.

Source: Kenanga Research - 9 Dec 2022