Fundamental Overview

• The ringgit initially faced pressure from the robust US core PCE reading last week, denting hopes for a Fed rate cut. However, the decline in US JOLTs job openings and Fed Chair Powell's seemingly dovish tone following the FOMC meeting aided in boosting the ringgit, bringing it close to the 4.75/USD level. The 10-year UST yield retreated below the 4.60% mark after Powell suggested that a rate hike was unlikely, leading to a narrowing of the negative MGS- UST yield differential gap and benefiting the local currency. Notably, the USD index fell close to the 105.0 level due to the lack of Fed hawkish conviction and the sharp appreciation of the yen.

• Anticipation of a weaker-than-expected US nonfarm payrolls report (Consensus: 240.0k) tonight is bolstering risk sentiment and aiding the ringgit in trading below the 4.74/USD level. Additionally, the possibility of a rise in the US unemployment rate could prompt a reassessment of Fed rate-cutting projections, especially as Powell noted that an "unexpected weakening in the labour market" could prompt rate cuts. Furthermore, the ringgit's trajectory towards the 4.72-4.73/USD level may be supported by solid domestic macroeconomic data expected next week and the BNM's continued stance of maintaining the current monetary policy status quo.

Technical Analysis

• The USDMYR pair's outlook is neutral-to-bullish, with the pair expected to trade around its 5-day EMA of 4.756.

• Technically, the pair is projected to fluctuate within the range of (S1) 4.721 – (R1) 4.760 next week. Nevertheless, the potential upside of the USD could drive the pair to trade above the (R2) 4.785 level.

Source: Kenanga Research - 3 May 2024