Fundamental Overview

• The recent shift in global risk sentiment, driven by escalating tensions in the Middle East and persistent vulnerabilities in the Chinese economy, has push the ringgit to once again breach the 4.70/USD threshold. This was exacerbated by the pushback from Fed officials against an early easing cycle, coupled with a robust performance in US retail sales. Despite the better-than-expected US macro readings, the USD index exhibits a relatively subdued response, attributable in part to the enduring strength of the equity market. Additionally, risk assets have suffered setbacks due to the market's tempered expectations for Fed rate cuts.

• The ringgit may continue to trade weak around the 4.70 level against the USD, driven by an unfavourable risk environment marked by geopolitical uncertainty, the waning Fed rate cut expectations, and China's lack of definitive stimulus measures. Nevertheless, the MYR may benefit from a potential hawkish shift in the BoJ's monetary policy direction and if the US 4Q23 GDP data unfolds weaker than expected. Attention will also be directed towards the US Core PCE reading, as investors search for indications of a cooling US economy. To add, Malaysia's stable inflation outlook, stronger 4Q23 GDP estimate reading and the BNM's commitment to maintaining the status quo may continue to support the ringgit.

Technical Analysis

• The technical outlook for the USDMYR is bearish, with the pair expected to hover around its 5-day EMA of 4.703.

• The pair may hover in a range of (S1) 4.686 – (R1) 4.734 next week. However, a shift in risk sentiment may help to prop up the MYR.

Source: Kenanga Research - 19 Jan 2024