Fundamental Overview

▪ The ringgit extended its losses and closed Thursday's trading session in the red against most major currencies including the USD due to lack of pro-ringgit catalysts. The local note depreciated to above the 4.40 psychological threshold against the USD as the USD index (DXY) jumped to near the 104.0 level on the back of hotter-than-expected US retail sales and PPI. On top of that, the ringgit was also pressured by a further narrowing of the 10-year MGS-UST yield differential (below 10 basis points).

▪ The DXY is expected to remain bid in a 103.5 - 104.5 range as the market price in more interest rate hikes from the Fed to curb sticky inflation, weighing on risk-on sentiment. Hence, the ringgit may trade weaker against the strengthening USD, especially if FOMC minutes turn out to be hawkish, potentially pushing the 10- year UST yield higher than MGS. Domestically, an expected slowdown in inflation and trade figures may strengthen the case that the BNM has reached the end-point of its normalisation cycle.

Technical Analysis

▪ The USDMYR pair’s outlook is bearish for next week, with the pair likely to trade near its 5-day EMA of 4.381 as its RSI is in an overbought position (See ST Technical table).

▪ Despite unfavourable fundamentals, the ringgit may shed some of its losses due to USD overbought position, with the pair projected to test (S1) 4.366 level. Inversely, a sustained break above the (R1) 4.423 level may signal USD’s bullish continuation.

Source: Kenanga Research - 17 Feb 2023