Fundamental Overview

• As projected in our previous FX report, the ringgit managed to appreciate below the 4.70/USD threshold, driven primarily by emerging signs of weakness in the US job market and Fed Powell's hints at potential rate cuts. However, USD weakness was mitigated by safe-haven demand following the unexpected victory of the left- wing alliance in the French election. Nevertheless, positive domestic factors, such as stable labour market conditions, record-high distributive trade sales values, and the BNM's status quo, bolstered the ringgit, enabling it to overcome the greenback's strength and appreciate by more than 0.4% on a Thursday-to-Thursday basis.

• Our expectations of softer US CPI readings were also realised, leading the USD index to dip below the 104.5 mark. Concurrently, the 10-year US Treasury yield is approaching 4.20% for the first time since March. Consecutive below-consensus inflation readings strengthen our argument for a September rate cut, with the market currently pricing in an 84.6% probability of a cut compared to 46.8% a month ago. Today's solid domestic IPI reading, coupled with strong 2Q24 preliminary GDP reading expected next week, may bolster the case for improving Malaysia's economic prospects. Alongside a potentially weaker US retail sales reading and dovish remarks by the Fed, the ringgit is poised to move towards 4.65/USD, though profit-taking activities may limit gains.

Technical Analysis

• The outlook for the USDMYR pair is bullish for the coming week, with expectations that it will trade near its 5-day EMA of 4.690.

• Technically, the pair may rise towards (R1) 4.696 due to profit-taking activities, although a decline to (S1) 4.658 remains a possibility.

Source: Kenanga Research - 12 Jul 2024