Kenanga Research & Investment

Ringgit Weekly Outlook - US Economic Weakness Could Boost Demand, But Data Variance May Support USD

Publish date: Fri, 05 Apr 2024, 12:14 PM

Fundamental Overview

  • Despite the improvement in China's factory activity, the ringgit weakened to nearly 4.76 against the USD on April 3, driven by better-than-expected US manufacturing PMI (50.3; Consensus: 48.4) and JOLTs job openings data. Notably, the 10-year MGS-UST negative yield differential widened to an average of -47.0 bps (last week: -37.0 bps). However, the ringgit later appreciated marginally to 4.74 following a lower-than-expected ISM services reading and a dovish tone surrounding the Fed's interest rate direction.
  • Data is currently steering the trajectory of the USD, and tonight's nonfarm payroll reading (consensus: 214.0k) will be closely watched. If it proves favourable enough to prompt the Fed to consider a rate cut, the USD is expected to weaken. Next week, attention will shift to US core inflation, and once again, the market will be looking for a reading below 0.2% MoM to justify closing their long USD positions. However, inconsistent US economic data and the absence of clear weakness may keep the USD elevated, putting pressure on the ringgit to trade around its current level. The FOMC minutes and China's key macro data may also influence ringgit. Stronger-than-expected data from China may boost the appeal of risk assets, benefitting the ringgit.

Technical Analysis

  • The technical outlook for the USDMYR pair is neutral for next week, with the pair expected to trade near its 5-day EMA of 4.743.
  • Technically, MYR is expected to trend higher against the USD should the market shift to risk-on mode, with the pair's immediate support awaits at (S1) 4.732, followed by (S2) 4.718. Conversely, the pair may test (R1) 4.757 if demand for the USD remains strong.

Source: Kenanga Research - 5 Apr 2024

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