Fundamental Overview

• The ringgit depreciated to its weakest level in 11 months as the USD index (DXY) soared to as high as 107.0 (Oct 3) due to an improvement in the US ISM manufacturing PMI and a hawkish Fed speech. The DXY was further bolstered by the better-than-expected US JOLTS job openings figure. The widening of the negative 10- year MY-US government bond yield differential has also pressured the ringgit to trade above the 4.70/USD level. Nevertheless, the ringgit managed to pared some of its losses following news of US private payrolls recording its slowest growth since Jan 2021.

• While the ringgit is expected to trade in the range of 4.71 to 4.73 next week, driven by robust demand for the safe-haven USD amid the recalibration of the Fed's monetary policy cycle, the direction of the currency will primarily be influenced by the US nonfarm payrolls and inflation data. If these readings turn out to be lower than consensus, it could trigger another adjustment in the Fed's cycle, potentially leading to more rate cuts expectations next year and resulting in a USD sell-off, which would benefit the ringgit. Additionally, the local note may find support from the expected progrowth federal budget for 2024 to be unveiled on Oct 13.

Technical Analysis

• The USDMYR is expected to turn neutral-to-bearish next week as its RSI reading is nearing overbought level (See ST Technical table).

• Technical-wise, MYR is expected to trend higher against the USD should US core inflation reading surprise on the downside, with the pair's immediate support awaits at (S1) 4.717, followed by (S2) 4.710. Conversely, the pair may test (R1) 4.730 if DXY trend higher.

Source: Kenanga Research - 6 Oct 2023