Fundamental Overview

• The ringgit remained nearly unchanged against the USD on a Thursday-to-Thursday basis, despite the Fed's hawkish stance on the trajectory of interest rates. Both the USD index (DXY) and the 10-year US Treasury saw declines despite Fed Chair Powell's resistance to a March rate cut. This may stem from the market's anticipation of a potential US recession due to a policy mistake, as Powell downplayed the chance of a March cut. The USD's weakness was further exacerbated by the surprise loss incurred by New York Community Bancorp.

• All eyes are now on the release of the US nonfarm payrolls tonight. A reading lower than the consensus figure (185.0k; Dec: 216.0k) might intensify selling pressure on the greenback, while a higherthan-expected number could buoy the DXY around the 103.0 level. Market attention may also focus on the US regional banking sector, as a further decline in the KBW Regional Banking Index may continue to exert pressure on Treasury yields and consequently weaken the USD. To add, we see some downside risks to US growth in the upcoming quarters as we anticipate the rate cut cycle to only commence in June. On the domestic front, robust IPI and retail sales readings have the potential to uplift the ringgit.

Technical Analysis

• The USDMYR is expected to remain neutral-to-bearish next week as its RSI reading is nearing overbought level.

• Technical-wise, MYR is expected to trend higher against the USD should US jobs report surprise on the downside, with the pair's immediate support awaits at (S1) 4.726.

Source: Kenanga Research - 2 Feb 2024