Fundamental Overview

▪ The ringgit traded weak around the 4.65-4.67 zone from Monday to Wednesday as the MY-US 10-year government bond yield differential continued to be in negative territory amid hawkish Fed expectations. The local note was also pressured by a relatively weak yuan as demand remained weak in China, as evidenced by its CPI reading of 0.0% YoY. However, the downside surprise in US core CPI reading (0.2% MoM; May: 0.4%) has dragged the USD index (DXY) below the 100.0 level for the first time in 15 months, subsequently strengthening the ringgit below the 4.60 threshold.

▪ The ringgit is expected to trade in the range of 4.51 - 4.55 with a marginal upside bias against the USD, as the DXY is expected to remain on a downtrend and approach the 99.0 level, especially if US retail sales data turn out to be lower-than-expected (consensus: 0.5% MoM; May: 0.3%). The market may also continue to monitor China's macro conditions (i.e. GDP and unemployment rate) and People Bank of China's policy direction next week. Any pro-yuan catalysts could help to boost the ringgit to trade closer to its psychological threshold of 4.50/USD.

Technical Analysis

▪ The USDMYR outlook is partially bullish for next week, with the pair expected to move towards its 5-day EMA of 4.607 as its RSI has entered into an oversold territory (See ST Technical table).

▪ Technically, MYR is expected to trade lower against the USD next week, with the pair’s immediate resistance level at (R1) 4.632, followed by (R2) 4.709. Nonetheless, a move towards (S1) 4.517 will reaffirm the ringgit’s strength.

Source: Kenanga Research - 14 Jul 2023