Fundamental Overview

• The ringgit stabilised around the 4.68 - 4.70 level against the greenback as the USD index (DXY) remained below the 105.0 level due to a lack of catalyst. However, a more hawkish tone than anticipated in the FOMC minutes, which mentioned a "lack of further progress" in efforts to bring inflation toward the 2.0% target, pushed the DXY back to around the 105.1 level on May 23. This movement weakened the ringgit to above the 4.70/USD level. Additionally, the DXY found support from the prospect of policy divergence between the Fed and G10 central banks, stemming from ECB President Lagarde's endorsement of a June rate cut and Canada's softer-than-expected inflation reading.

• The unexpectedly positive S&P PMI readings in the US are fuelling bets that the US economy could achieve another robust GDP growth in 2Q24, supporting the Fed's higher-for-longer narrative and benefitting the DXY. Looking ahead, there are no significant US data releases scheduled for next week, except for core PCE data on Friday, which is expected to influence the DXY's trajectory leading up to June's job report. On the domestic front, inflation is forecasted to remain stable at 1.8% YoY today, which should help maintain stability in the ringgit at its current level. However, escalating geopolitical tensions between China and Taiwan could potentially boost the USD and place pressure on risk assets.

Technical Analysis

• The USDMYR outlook has shifted to a neutral stance, with the pair likely to hover around its 5-day EMA of 4.705.

• The pair is projected to trade in the range of (S1) 4.696 – (R1) 4.727, with geopolitical uncertainty posing downside risks.

Source: Kenanga Research - 24 May 2024