Fundamental Overview

• The ringgit strengthened against the USD, trading below the 4.70 threshold as anticipated, driven by a decline in the USD Index (DXY) near the 104.0 mark and a drop in the 10-year US Treasury yield below 4.30%. The DXY's weakness is primarily due to rising expectations of a September rate cut by the Fed, following an on- target PCE inflation report, weak spending figures last Friday, and softer US job data this week. Despite support from the Bank of Canada rate cut, the European Central Bank's hawkish stance had little to no effect on the DXY. In addition to USD weakness, the ringgit was bolstered by the improvement in Malaysia's manufacturing PMI (50.2; May: 49.0).

• The outlook for the ringgit remains highly fluid, pending the release of nonfarm payroll figures tonight, as well as inflation numbers and the Fed's decision next week. A potentially sub-200.0k payrolls report, combined with below-consensus CPI figures, could strengthen the case for a dovish tilt from the Fed, benefitting risk assets including the ringgit. Conversely, an upside surprise in US key macroeconomic data may push rate cut expectations back to November/December, thereby strengthening the DXY. The Bank of Japan is expected to maintain its current policy stance next week, with little to no impact on the FX market. Stronger macroeconomic data from Malaysia could further boost demand for the ringgit.

Technical Analysis

• The USDMYR outlook remains neutral for the upcoming week, with the pair likely to trade around its 5-day EMA of 4.698.

• The pair faces immediate support level at (S1) 4.692 and may reverse to (R1) 4.703 if US data surprises on the upside.

Source: Kenanga Research - 7 Jun 2024