Fundamental Overview

▪ The ringgit is once again hovering near its psychological level of 4.80/USD as the USD index (DXY) surged above the 104.0 level. This surge is primarily driven by increasing demand for safe-haven assets, spurred by last Friday's strong jobs report. The ongoing resistance from Fed officials against an early rate cut has also contributed to supporting the DXY around its current level. Despite China's pledge of support for markets, the ringgit continued to track the weaker yuan due to concerns about the country's weak economic prospects amid its struggle with deflation. Domestically, the weaker-than-expected IPI readings have failed to support Malaysia's solid macro story, putting pressure on the ringgit.

▪ The odds of a rate cut in March have significantly dropped to below 20.0%, and the market now only expects six rate cuts in 2024, starting in May. We believe that the persistent strength in US macro data in the coming months may shift the timing of the long-awaited Fed pivot to June. This narrative may continue to support the DXY, driving it to trade strongly and exert pressure on risk assets. That being said, today's US inflation revision is an important risk factor. Any downward revision to the 2023 inflation numbers may give the Fed more confidence to start cutting. On the data front, weaker price pressure and retail sales may help drag the DXY back below the 104.0 level, benefitting the ringgit.

Technical Analysis

▪ The outlook for USDMYR is bearish for next week, with its RSI approaching an overbought position (See ST Technical table).

▪ The pair may face sustained pressure from limited buying interest, but a technical correction may drive it to trade around (S1) 4.760.

Source: Kenanga Research - 9 Feb 2024