Fundamental Overview

• As anticipated, the ringgit remained relatively stable around the 4.70/USD mark this week, reflecting a mild risk-on sentiment amid low market volatility. This stability is partly due to market consensus expecting a modest 0.2% MoM increase in the core PCE reading tonight (Apr: 0.3% MoM). If this expectation is met, it may bolster prospects for a September Fed rate cut, thereby weakening the USD. The ringgit faced pressure from rising 10-year US Treasury yields, driven by strong US consumer confidence, weak debt auctions and hawkish Fedspeak. Additionally, the yuan's decline to its lowest level in six months (7.25/USD), due to a lack of domestic catalysts, further weakened the ringgit.

• Despite the recent downbeat reading from China's NBS Manufacturing PMI, which is expected to weigh on the ringgit, tonight's potentially soft US core PCE release may support the ringgit trading below the 4.70/USD mark into next week. The US May job market report will be closely monitored, as further signs of weakness could prompt another dovish adjustment in the Fed fund futures market, benefiting risk assets. However, a widely anticipated 25 basis point rate cut by the European Central Bank may lend support to the USD. Nonetheless, a lack of guidance from the ECB on future moves could limit the USD's gains. Domestically, a solid PMI reading may also help the ringgit appreciate against the USD.

Technical Analysis

• The USDMYR outlook remained neutral, with the pair expected to hover around its 5-day EMA of 4.702.

• The pair is expected to trade within the range of (S1) 4.694 – (R1) 4.708, with potential upside driven by possible weak US macro.

Source: Kenanga Research - 31 May 2024