Fundamental Overview

▪ The ringgit strengthened marginally against the greenback due to weaker USD demand following the sudden collapse of Silicon Valley Bank. This has caused the recalibration of Fed policy expectations to which the Fed is now expected to cut by at least 100 basis points (bps) by end-2023. However, the local note's upside was capped by the prevailing risk-off sentiment among investors. This sentiment is caused by rising market uncertainty amid growing concerns over the global banking crisis.

▪ Increasing market expectations that the Fed may only hike by 25 bps and potentially signal that it may pivot sooner rather than later may change the ongoing bearish ringgit narrative and strengthen the local note. However, recent decision by the European Central Bank to hike by another 50 bps and hotter-than-expected US core inflation on a MoM basis have complicated the outlook. Despite these uncertainties, the ringgit may still appreciate below the 4.50 to the USD threshold due to favourable domestic factors.

Technical Analysis

▪ The USDMYR pair outlook is neutral-to-bearish and it is expected to trade near its 5-day EMA of 4.498 as its RSI reading is approaching an overbought position (See ST Technical table).

▪ Technical-wise, the pair may move towards (S1) 4.490 and test (S2) 4.478, which indicates an upside pattern for the local note. Conversely, if the Fed remains relatively hawkish, the pair may test (R1) 4.509 and attempt to move higher to test (R2) 4.516.

Source: Kenanga Research - 17 Mar 2023