Fundamental Overview

• As expected, the ringgit was range-bound between 4.705 and 4.718 against the USD despite weak US housing data. The USD index (DXY) surged above the 106.0 level on June 26, driven by the weakening of the EUR and GBP amid French political uncertainty and heightened expectations of a BoE rate cut in August. The DXY also received support from the JPY falling to its lowest level since December 1986. Additionally, weak yuan fixing, and a lack of domestic catalysts contributed to the downside pressure.

• A potentially soft US core PCE data, expected at 0.1% MoM (Apr: 0.2%) tonight, may reinforce a dovish Fed narrative, bolstering the case for a rate cut in September. While this may weaken the DXY and benefit the ringgit, increasing Euro risk premiums ahead of the French parliamentary election this Sunday may buoy the safe-haven dollar around its current level. Markets will be closely monitoring potential BoJ interventions and developments in the US presidential debates. On the US macro front, manufacturing PMI, June jobs report, Fed Chair Powell's speech, and the FOMC minutes will be scrutinised. We expect emerging signs of US economic weakness, which may help the ringgit trade closer to the 4.70/USD level. However, as the USD is currently being use as a hedge for political uncertainty, market may continue to adopt a wait-and-see approach.

Technical Analysis

• The USDMYR is expected to turn neutral-to-bearish next week, with the pair likely to hover around its 5-day EMA of 4.716.

• Technical-wise, the pair's immediate support awaits at (S1) 4.711. Inversely, the pair may test (R1) 4.727 if DXY trend higher.

Source: Kenanga Research - 28 Jun 2024