Fundamental Overview

• The ringgit strengthened to below the 4.70/USD level for the first time since mid-March. This upturn is primarily attributed to the depreciation of the USD index and a downturn in the 10-year US Treasury yield. Despite an unexpected rise in the PPI reading, the market responded with optimism amid disinflationary prospects. The weakening of the DXY can be largely attributed to the slowdown in core CPI, weak retail sales reading and perceived dovish tone of Fed Chair Powell's remarks. Additionally, news of Chinese cities ramping up policy efforts to bolster the housing sector has further bolstered the ringgit's position.

• Next week, the ringgit is expected to trade within a narrow range of 4.67-4.69 against the USD due to the absence of key data. The sentiment expressed in the FOMC minutes is likely to be the primary driver of the ringgit's trajectory, with a dovish stance potentially leading to a depreciation of the USD and benefiting the local currency. It is anticipated that China will maintain its benchmark loan prime rate unchanged to uphold stability in the yuan. US-China relations remain a geopolitical concern. On the domestic front, inflation is expected to remain stable, reinforcing the likelihood of BNM maintaining policy rate status quo. This stability could attract foreign investors and contribute to the appreciation of the ringgit.

Technical Analysis

• The USDMYR outlook has turned bullish, with the pair likely to trade near the 5-day EMA of 4.702 as its RSI is in an oversold zone.

• Technically, the MYR is expected to trade lower against the USD next week, with the pair’s immediate resistance level at (R1) 4.716.

Source: Kenanga Research - 17 May 2024