Fundamental Overview

▪ The ringgit strengthened against the greenback as the USD index fell to near the 103.5 level amid US debt deal optimism, as the bill passed the House of Representatives by a vote of 314-117. This, coupled with waning expectations of another 25 basis points rate hike by the Fed in its June meeting has helped to pushed the MGSUST yield differential back to positive territory, benefiting the ringgit. However, US better-than-expected JOLTs and ADP readings, coupled with a weaker yuan have capped ringgit's gains.

▪ As the US Senate is expected to pass the debt limit suspension bill today, the ringgit may benefit and extend gains below the 4.60/USD threshold. However, the focus will quickly shift to the US nonfarm payroll report, as a higher-than-expected reading may drive back demand for the USD. Next week, the trajectory of the ringgit may continue to be influenced by the Fed's policy expectations, as multiple Fed speakers have suggested that the Fed should at least skip a June rate hike. The market will also monitor China's economic data, and the MYR is poised to benefit if the reading is strong.

Technical Analysis

▪ The USDMYR is expected to turn neutral-to-bearish next week, with the pair likely to hover around its 5-day EMA of 4.602 as its RSI reading is nearing overbought level (See ST Technical table).

▪ Technical-wise, MYR is expected to trend higher against the USD should the market shift to risk-on mode, with the pair's immediate support awaits at (S1) 4.588, followed by (S2) 4.582. Conversely, the pair may test (R1) 4.607 if safe-haven demand remained strong.

Source: Kenanga Research - 2 Jun 2023