Fundamental Overview

▪ Despite the US debt ceiling deal and a below-consensus US ISM Services PMI print, the ringgit experienced continued depreciation against the USD, mainly due to the current market sentiment of caution and risk avoidance in anticipation of the upcoming US Fed meeting. Although the USD index weakened below the 103.5 level, the ringgit did not benefit from this due to the weakening of the yuan, which was driven by China's weaker-than-expected exports reading of -7.5% YoY in May (April: 8.5%; consensus: -0.4%).

▪ The ringgit may continue to face depreciatory pressure as investors are likely to adopt a wait-and-see approach leading up to the release of US CPI data and the US FOMC meeting next week. If the US core inflation reading turns out to be lower than the consensus forecast of 0.4% MoM, it may prompt a reassessment of market expectations regarding the direction of the Fed's monetary policy, potentially shifting from a hawkish to a dovish position, which would favour the local note. Additionally, the ringgit will also be influenced by China and US retail sales reading for May.

Technical Analysis

▪ The USDMYR pair's outlook is neutral for next week, with the pair expected to trade near its 5-day EMA of 4.605 as the pair’s RSI is in the middle of the range (See ST Technical table).

▪ Technical-wise, the pair may move towards (S1) 4.581 and test (S2) 4.557, which indicates an upside pattern for the local note. Conversely, if the Fed remains relatively hawkish, the pair may test (R1) 4.626 and attempt to move higher to test (R2) 4.646.

Source: Kenanga Research - 9 Jun 2023