Fundamental Overview

• The USD index (DXY) fell marginally, nearing the 106.0 level, despite the Fed's hawkish hold. This can be attributed to a rally in the US bond market driven by issuance pressure, pushing the 10- year US Treasury yield lower. Additionally, the market appears to focus more on the pause and the weaker-than-expected US ISM Manufacturing PMI reading rather than on the Fed’s tone. BNM's decision to maintain the status quo on the policy rate also supported the local note. However, the unexpected contraction in China's PMI has limited the ringgit's appreciation.

• Since the market interpreted the Fed's pause yesterday as somewhat dovish, we will require a strong confirmation from the nonfarm payrolls reading today to indicate that the US economy is faltering for the DXY to decline toward the 105.0 level. A reading below the consensus (180.0k; Sep: 336.0k) is expected to support the appreciation of the ringgit, bringing it closer to the 4.70 mark. The ringgit's will also be influenced by domestic macroeconomic readings (i.e. IPI and retail sales) and China's economic conditions. Notably, increasing geopolitical tensions are still dampening risk-on sentiment, which is favourable for safe-haven assets.

Technical Analysis

• The USDMYR outlook turned neutral for the week ahead, with the pair likely to hover around its 5-day EMA of 4.759 as its RSI is in the middle of the range (See ST Technical table).

• The pair faces an immediate support level at (S1) 4.744, followed by (S2) 4.737. Conversely, a breach above the (R1) 4.765 level may signal a reversal of ringgit’s appreciation.

Source: Kenanga Research - 3 Nov 2023