Fundamental Overview

▪ The ringgit declined close to the 4.50 threshold against the USD primarily due to the Fed's more hawkish guidance following a hotter-than-expected US core PCE reading of 0.6% MoM (consensus: 0.4% MoM). Additionally, Malaysia’s revised budget 2023 did not provide any significant impetus, while the MY-US negative 10-year bond yield differential continue to weighed on the ringgit's performance. Nevertheless, China's robust PMI (52.6; consensus: 50.5) partially bolstered the ringgit.

▪ As the USD index is expected to hover near the 105.0 level ahead of the US job report and Fed's Powell testimony, the ringgit may continue to depreciate and trade closer to the 4.50 level against the greenback. If Powell delivers a hawkish message and US job data continue to be resilient, it may lead to another round of repricing in the Fed's policy path, further pressuring risk assets. The local note may also be pressured by BNM's monetary policy decision, as the central bank is expected to maintain status quo.

Technical Analysis

▪ The USDMYR pair’s outlook remain neutral-to-bearish next week, with the pair likely to trade around its 5-day EMA of 4.470 as its RSI is nearing overbought position (See ST Technical table).

▪ Technically, MYR may reverse some of its losses against the USD this week if the Fed emphasises on the disinflationary dynamics. Nevertheless, the pair may continue to face heightened volatility and trade between (S2) 4.464 – (R2) 4.493.

Source: Kenanga Research - 3 Mar 2023