Fundamental Overview

▪ After weakening to around the 4.55 - 4.57 level against the USD, the ringgit surprisingly rebounded and strengthened to near the 4.52 level following a 25 bps rate hike by the Fed. The market interpreted Fed Powell's decision not to confirm another rate hike this year during the post-FOMC press conference as a dovish shift, pressuring the USD index (DXY) and boosting the ringgit. Additionally, the local note has benefitted from the strengthening of the yuan due to the state bank's intervention measures and optimism over the government's stimulus pledge.

▪ The better-than-expected US 2Q23 GDP reading of 2.4% QoQ (Consensus: 1.8%) and Lagarde's dovish tone post-ECB 25 bps hike may help to keep the DXY supported above the 101.5 level, thereby putting pressure on the ringgit. Nevertheless, the market will continue to monitor key macro indicators, such as the US Core PCE reading, and if it comes in lower than expected (Consensus: 0.2% MoM), it could provide some support to the ringgit. Looking ahead to next week, the local note stands to benefit if there are signs of cracks emerging from the US labour market, indicating that recession risks continue to linger on despite the solid GDP reading.

Technical Analysis

▪ The USDMYR neutral outlook is expected to continue for the week ahead, with the pair likely to hover around its 5-day EMA of 4.545 as its RSI is in the middle zone (See ST Technical table).

▪ Technically, the pair is expected to hover in a range of (S1) 4.523 – (R1) 4.566 next week. However, a potential USD’s upside may push the pair above the (R2) 4.587 level.

Source: Kenanga Research - 28 Jul 2023