Fundamental Overview

▪ The ringgit depreciated marginally against the USD, despite increasing expectation of the Fed pausing at its June meeting and bets of three 25 basis points (bps) rate cuts by year-end amid US consensus-matching CPI readings. This was mainly due to a return of flight-to-safety amid rising concerns about the expiry of US debt ceiling and banking fallout. To note, FDIC announcement that the largest US banks may be hit with a USD16.0b bill for the clean-up of SVB, coupled with Fed's Kashkari hawkish remarks has boosted the USD index (DXY) to trade back above the 102.0 level.

▪ The postponement of the meeting between President Biden and congressional leaders to discuss about the US debt ceiling limit may have a negative impact on risk sentiment, leading to a potential upward correction for the USD. The fact that the US is approaching a possible default, coupled with the ongoing turmoil in the US banking industry, should support the DXY to trade around the 102.0 - 103.0 level, weakening the ringgit. Additionally, the yuan's decline may also affect the local note negatively, particularly if China's macroeconomic data falls below expectations.

Technical Analysis

▪ The USDMYR is expected to turn neutral-to-bearish next week, with the pair likely to trade near its 5-day EMA of 4.462 as its RSI reading is nearing overbought level (See ST Technical table).

▪ Technically, MYR weakness against the USD may reverse should risk sentiment improve, with the pair immediate support awaits at (S1) 4.450. Conversely, the pair may test (R1) 4.488 if DXY trend higher.

Source: Kenanga Research - 12 May 2023