Fundamental Overview

• The ringgit extended last week's losses and depreciated to its weakest level on record against the USD. The local note breached its 1998 low of 4.77 as the 10-year US Treasury (UST) soared above the 5.00% level for first time since July 2007, driven by increasing demand for safe-haven assets amid the Middle East crisis. The USD also strengthened due to the election of a new US House Speaker, which helps mitigate the risk of a potential government shutdown by November 17. Of note, year-to-date, the local note has already weakened by a substantial 8.6% vis-à-vis the greenback.

• Despite US' better-than-expected 3Q23 GDP growth of 4.9% QoQ (Consensus: 4.5%), increasing financial pressure on US households may weaken demand and strain the US economy in the coming quarters. Investors will closely monitor the Fed's preferred inflation measure tonight, which is expected to trend higher to 0.3% MoM (Aug: 0.1%). This, coupled with the European Central Bank's cautious stance and a potential Bank of England pause, may continue to keep the USD in demand. However, our expectation of a potential policy tweak by the Bank of Japan and market's anticipation of a continued pause by the Fed and a relatively weak US jobs report next week may temper the USD's ascent.

Technical Analysis

• The ringgit outlook is neutral-to-bullish next week, with the pair likely to trade near its 5-day EMA 4.779.

• MYR may reverse its weakness against the USD should risk sentiment improve, with the pair immediate support awaits at (S1) 4.773. Conversely, the pair may test (R1) 4.788 if DXY trend higher.

Source: Kenanga Research - 27 Oct 2023