Fundamental Overview

▪ Due to increased flight-to-safety bets, driven by concerns over US debt ceiling negotiations, weaker-than-expected US 1Q23 GDP reading (1.1% QoQ; 4Q22: 2.6%; consensus: 1.9%), and growing US-China tensions, the ringgit has extended its weakness and depreciated above the 4.46 level against the USD. Additionally, the narrowing of the MY-US bond yield premium to below 25 basis points (bps) has also put pressure on the local note.

▪ Today's market focus is on the US Core PCE Price Index reading and the BoJ rate decision. A cooler-than-expected US inflation reading and any upward adjustments to the BoJ inflation forecasts could weaken the USD. Next week, attention will shift to the Fed and ECB monetary policy decisions. Although the Fed is expected to hike by another 25 bps, any guidance of a potential pause at its next meeting is likely to put pressure on the greenback. Moreover, a potential hawkish surprise by the ECB could make the EUR more appealing, further weakening the USD. No reaction is expected from BNM's rate decision as it is expected to maintain status quo.

Technical Analysis

▪ The USDMYR outlook is bearish for next week, with the pair expected to trade near its 5-day EMA of 4.455 as its RSI is in an overbought position (See ST Technical table).

▪ Although there are no significant risk-on catalysts, the ringgit may gain ground against the overbought USD, with the pair projected to test (S1) 4.446 level. Inversely, a sustained break above the (R1) 4.472 level may signal USD’s bullish continuation.

Source: Kenanga Research - 28 Apr 2023