Fundamental Overview

• A substantial drop in the US Treasury 10-year yield from 4.80% (Oct 9) to 4.56% (Oct 11) due to the Fed's dovish comments has helped the ringgit to recoup some of its losses and strengthened against the USD on a Thursday-to-Thursday basis. The ringgit also benefitted from Malaysia’s solid macro fundamentals. Nevertheless, cautious FOMC minutes, combined with the hotter-than-expected US PPI reading and the Middle East conflict, have continued to drive demand for the safe-haven USD, exerting pressure on the ringgit.

• Despite an unexpected increase in the US inflation figure, a moderation in the core CPI number continues to support the argument that the Fed is done hiking. However, this surprising reading is helping to push the USD index to maintain a foothold above the 106.0 level, weakening the ringgit. More clarity is needed from US economic figures (i.e. receding price pressure and a weakening labour market), to prompt the Fed to signal that they have taken sufficient measures, and the next step would be a rate cut. Therefore, the ringgit may continue to face pressure due to this short-term USD strength. As the ringgit is also closely tracking the yuan, any positive development on China's economy (i.e. solid GDP growth and new round of stimulus) may benefit the local note. Domestically, the ringgit may find support from Budget 2024 today.

Technical Analysis

• The USDMYR pair's outlook is neutral for next week, with the pair expected to trade near its 5-day EMA of 4.723.

• Technically, barring any unforeseen shock to the market, the pair is projected to hover in a tight range of (S1) 4.719 – (R1) 4.740.

Source: Kenanga Research - 13 Oct 2023