Fundamental Overview

• The ringgit weakened to above the 4.72/USD level on Monday before recovering back to below 4.71/USD on Thursday. The ringgit was initially pressured by last Friday's stronger-than-expected nonfarm payrolls reading. However, the softer-than-anticipated May CPI print (0.0% MoM; Consensus: 0.1%) helped the ringgit regain some ground. Subsequently, the USD index (DXY) rebounded to above the 105.0 level as the Fed, during the FOMC meeting, revised its inflation forecasts upward and signalled the possibility of only one rate cut this year, down from the previously expected three.

• The unexpected decline in US PPI reading (-0.2% MoM; Consensus: 0.1% MoM), combined with a sharp rise in US weekly jobless claims (242.0k; Consensus: 225.0k), further bolsters the case for the Fed to start to ease its monetary policy tightness. Next week, key economic data from China may influence the direction of the ringgit, with signs of recovery potentially benefiting the local note. Both the BoE and PBoC are expected to maintain their current policy rates. However, any dovish signals from the BoE could bolster the DXY. Additionally, further signs of weakness in the US economy and a neutral-to-dovish tone from Fed officials could help the ringgit strengthen to below the 4.70/USD level.

Technical Analysis

• The USDMYR outlook continued to remain neutral and may trade near its 5-day EMA of 4.713 as its RSI is in the middle of the range.

• Technically, a sustained move over (R1) 4.723 should signal the return of sellers for the ringgit, while a sustained dip below the (S1) 4.709 level may suggest a return of risk-on mood in the FX market.

Source: Kenanga Research - 14 Jun 2024