Fundamental Overview

▪ Despite the stronger-than-expected ADP employment reading in the US and the Fed’s 25 basis points (bps) rate hike, all risk-on currencies, including the ringgit, strengthened against the USD. This was mainly due to the decline in US pay growth to 13.2% YoY (Mar: 14.2%) and the Fed's subtle hint of a possible pause in its May meeting. Additionally, the local note received a boost from the Bank Negara Malaysia’s surprise 25 bps rate hike.

▪ The ringgit is expected to strengthen further against the USD as the market anticipates a deceleration in today's US Non-Farm Payrolls reading (consensus: 185.0k; Mar: 236.0k). Furthermore, an expected slowdown in the US core inflation reading, coupled with a potentially better-than-expected Malaysia's 1Q23 GDP reading next week, may provide additional support for the local note. However, rising concerns over the US banking sector, as indicated by falling US Treasury rates, could lead to a potential return of a risk-off environment, which may support the USD index to trade above the 101.0 level and limit the ringgit's gains.

Technical Analysis

▪ The USDMYR pair's outlook is neutral for next week, with the pair expected to trade near its 5-day EMA of 4.446 as the pair’s RSI is in the middle of the range (See ST Technical table).

▪ Technically, a sustained move below (S1) 4.427 will signal the presence of sellers for the greenback and potentially set in motion a move towards (S2) 4.417, while a sustained move above the (R1) 4.455 level may suggest a return of risk-off in the FX market.

Source: Kenanga Research - 5 May 2023