Fundamental Overview

▪ Despite rising economic uncertainties, a smaller-than-expected rate cut by the People’s Bank of China (PBoC), lower-than-expected US jobless claims, Nvidia's stellar 2Q23 results and the Fed's hawkish stance, the ringgit strengthened marginally against the USD amid a weak US manufacturing PMI reading of 47.0 (Jul: 49.0; Consensus: 49.3). Additionally, the MYR was also supported by the appreciation of the yuan due to the strong pushback in PBoC's fixings. However, the ringgit continued to be pressured by the negative yield differential between the MY-US 10-year government bonds.

▪ The sustained demand for safe-haven assets ahead of the Jackson Hole economic symposium tonight may continue to buoy the DXY around the 104.0 level. It is likely that the Fed will refrain from giving any strong signals on their monetary policy direction and will remain dependent on economic data. Therefore, the US labour market report and core PCE reading next week should be the key drivers for DXY’s movement. However, the market will still closely monitor Fed's Chairman's tone. Any indications of dovishness, particularly in light of recent signs of weakness in the US economy, could trigger a USD sell-off, which would favour the ringgit.

Technical Analysis

▪ The USDMYR pair outlook remained neutral-to-bearish as its RSI is approaching the overbought level (See ST Technical table).

▪ The MYR may trade marginally stronger against the USD, with the pair’s support level around (S2) 4.640 – (S1) 4.647. Conversely, a breach above (R1) 4.660 level may signal a return of USD buyers.

Source: Kenanga Research - 25 Aug 2023