Fundamental Overview

▪ Despite the strengthening of the yuan against the USD, the ringgit weakened to a 10-month low of 4.68 as the USD index (DXY) soared to 105.4 (Sep 14) amid higher-than-expected US core inflation reading of 0.3% MoM in August (Jul: 0.2%). Of note, the yuan managed to reverse most of its last week's losses due to the PBoC's RRR cut, window guidance policy and a stronger daily fix. Although the ringgit saw marginal benefits from solid domestic IPI and retail sales readings, it remains under pressure due to lingering concerns over US inflation and a lack of optimism on China's growth.

▪ The ringgit may find some support from the appreciation of the yuan, given China’s solid macro readings in August, coupled with the potential for continued PBoC's intervention. However, the appreciation may be offset by a potential interest rate cut by the Chinese central bank, as increasing PBoC-Fed monetary policy divergence could put pressure on the yuan. Next week's focal point will be the FOMC's meeting. While a rate hike is unlikely, the market will closely monitor the dot plot projections. Any dovish revisions in these projections may pressure the DXY to retreat to around the 104.5 level, which would benefit the ringgit.

Technical Analysis

▪ The USDMYR outlook remain neutral-to-bearish next week, as its RSI is approaching overbought position (See ST Technical table).

▪ Technically, MYR may reverse some of its losses against the USD next week if the Fed signal an official end to its hiking cycle. Nevertheless, the pair may continue to be pressured by the lack of buying interest and trade between (S2) 4.671 – (R2) 4.690.

Source: Kenanga Research - 15 Sept 2023