Fundamental Overview

▪ The ringgit appreciated by around 0.25% on a Thursday-toThursday basis against the USD due to the below-consensus ISM manufacturing index print and decreased activity in US markets amid the US Independence Day holiday. However, the ringgit's gains were capped by a surge in the 10-year US Treasury yield above the 4.0% level for the first time in more than four months, amid hawkish FOMC minutes and strong private-sector job growth.

▪ The differential between MY-US 10-year government bond yields is likely to remain in negative territory, as BNM has adopted a more neutral stance, retaining the overnight policy rate at 3.0%, while the Fed has become more hawkish in its policy stance, supported by strong US labour data. This, coupled with the current market consensus of another 25 bps rate hike by the Fed in July, is likely to continue to exert downward pressure on the ringgit. However, the market is still expected to wait for the release of US non-farm payrolls tonight and US core inflation data next week before making any major moves. That being said, any above-consensus reading may prompt another round of adjustment, weakening the local note.

Technical Analysis

▪ The USDMYR pair outlook is neutral-to-bearish and it is expected to trade near its 5-day EMA of 4.663 as its RSI reading is approaching an overbought position (See ST Technical table).

▪ Technical-wise, the pair may move towards (S1) 4.657 and test (S2) 4.644, which indicates an upside pattern for the local note. Conversely, if US inflation comes in hotter-than-expected, the pair may test (R1) 4.677 and attempt to move higher to test (R2) 4.684.

Source: Kenanga Research - 7 Jul 2023