Fundamental Overview

• The softer-than-expected US core PCE reading of 0.1% MoM (Consensus: 0.2%) has further reinforced the market's inclination towards a rate cut by the Fed as early as March 2024. Consequently, both the USD index and the 10-year US Treasury yield have been trading around the 101.0 and 3.8% levels, respectively. The narrowing of the MY-US government bond yield differential to around -12.6 bps on average this week (compared to last week's -16.6 bps) has contributed to boosting the ringgit to near the 4.60/USD level. However, the ringgit's gains have been capped by rising concerns about the state of the China’s economy.

• The ringgit is poised to maintain its upward trajectory today, driven by month-end FX hedge rebalancing activity, potentially closing the year within the range of 4.55 to 4.60 against the greenback. Anticipated momentum suggests a further appreciation into 2024, particularly if signals from the ISM manufacturing PMI and the US jobs report next week indicate a softening US economy. The market currently factors in a weaker US nonfarm payroll reading of 168.0k (November: 199.0k). Next week's focus will also be on the FOMC minutes for December. Investors may scrutinise the minutes for any dovish signals from the Fed, though we maintain the view that the Fed will likely persist in its cautious policy stance.

Technical Analysis

• The USDMYR outlook is partially bullish next week, with the pair expected to move towards its 5-day EMA of 4.616.

• Technically, MYR is expected to trade lower against the USD next week, with the pair’s immediate resistance level at (R1) 4.623.

Source: Kenanga Research - 29 Dec 2023