Fundamental Overview

▪ The ringgit weakened above the 4.50 threshold against the greenback for the first time since November 2022, mainly due to stronger USD demand following Fed Powell's hawkish testimony that brings back the possibility of a 50 basis point (bps) rate hike. Additionally, the local note was also pressured by the depreciation of the yuan (near 7.00 per USD) due to weak Chinese data and increasing US-China tensions. Domestically, BNM’s policy rate pause has also weighed on the ringgit.

▪ The USD index may consolidate around the 105.0 - 105.5 level ahead of the US nonfarm payrolls reading, in which any positive surprise to the current consensus of 225.0k (Jan: 517.0k) may solidify the possibility of a 50 bps rate hike at the March 22 meeting, weakening the ringgit. However, the market will continue to monitor the US core inflation trajectory which is expected to be lower at 5.5% YoY (Jan: 5.6%). If the inflation readings come in lower than expected, the ringgit may recover some of its losses.

Technical Analysis

▪ The technical outlook for the USDMYR pair is neutral-to-bearish, with the pair expected to hover around its 5-day EMA as its RSI is approaching an overbought level (See ST Technical table).

▪ MYR is expected to reverse its downtrend and trade marginally stronger against the USD if US CPI trend lower, with the pair’s support level at (S1) 4.485. Conversely, a breach above (R1) 4.538 level may signal an extension of the bullish USD trend.

Source: Kenanga Research - 10 Mar 2023