Fundamental Overview

▪ Despite lack of domestic catalysts and the narrowing of the 10- year MGS-UST yield differential (below 30 basis points (bps), the ringgit surprisingly strengthened by more than 1.0% against the USD. This was mainly due to the weakening of the USD index below the 102.0 threshold amid expectation of a less hawkish Fed due to souring US economic data. The MYR was also supported by investors' growing confidence in Malaysia's political stability and an influx of tourists amid the reopening of China.

▪ Even though the ringgit is expected to benefit from a potentially less hawkish Fed rate hike next week (consensus: 25 bps hike) and signs of a weakening US labour market, the shrinking MGSUST yield premium may continue to pressure the local note. The direction of the local note will also be influenced by the outcome of the ECB and BoE monetary policy meetings, coupled with the performance of China PMI. That being said, the ringgit is seen to trade around the 4.22 – 4.27 level with an upside bias.

Technical Analysis

▪ The USDMYR pair's outlook is bullish for the week ahead, with the pair likely to hover around its 5-day EMA of 4.263 as the pair’s RSI is in an extremely oversold position (See ST Technical table).

▪ Technical-wise, the pair may move towards the (R1) 4.272 level and potentially test the (R2) 4.298, which indicates an upside pattern for the USD. Nonetheless, a rally towards the (S1) 4.233 level will reaffirm ringgit’s strength.

Source: Kenanga Research - 27 Jan 2023