Fundamental Overview

• While Fed Chair Powell maintains a hawkish stance and asserts that the central bank is not prepared to initiate interest rate cuts, signs of a cooling US labour market, evident in the deceleration of ISM services employment, slower growth in private payrolls, and a decline in job openings, have dragged the USD index (DXY) to trade around the 103.0 level. The weakening USD, coupled with positive China trade data and the BNM's decision to maintain the status quo, has contributed to the strengthening of the ringgit, reaching 4.71/USD. Notably, this week saw net foreign inflows of RM0.7b into the domestic debt market, indicating a rise in foreign demand.

• Despite the recent weakness in the US labour market, investors are likely to stay cautious ahead of the nonfarm payroll data release (consensus: 200.0k; Jan: 353.0k). A reading below consensus could potentially boost risk-on assets and bolster the ringgit to trade stronger around the 4.67/USD level. Conversely, an upside surprise may push the ringgit back above the 4.72/USD level. Attention will also be focused on China's "Two Sessions," particularly regarding economic stimulus and the stance on relations with the US and Taiwan. Looking ahead, next week's US core inflation and retail sales readings could offer the market a clearer view of the Fed's future direction before the March FOMC meeting.

Technical Analysis

• The USDMYR outlook is partially bullish for next week as its RSI has entered into an oversold territory (See ST Technical table).

• Technically, MYR is expected to trade lower against the USD, with the pair’s immediate resistance level at (R1) 4.719. Nonetheless, a move towards (S1) 4.670 will reaffirm the ringgit’s strength.

Source: Kenanga Research - 8 Mar 2024