Fundamental Overview

• As expected, the ringgit stabilised below the 4.68/USD and strengthened towards 4.66/USD level, partly due to Malaysia's robust 2Q24 advance GDP reading and as the USD index (DXY) holding steady around 104.4. The DXY's muted movement was due to a lack of pro-USD catalysts and ongoing market pricing in a September Fed rate cut. Additionally, lacklustre Big Tech earnings pressured the DXY. China's surprise 20 bps cut in the medium-term lending facility helped restore confidence in its economy, benefitting the ringgit. Domestically, stable inflation and solid growth outlook helped attract RM1.1b portfolio funds into the bond market.

• The US' better-than-expected 2Q24 GDP reading of 2.8% QoQ (Consensus: 2.0%) did little to alter market expectations of upcoming rate cuts, given the uncertain economic outlook for 2H24. Even a potentially higher-than-expected core PCE reading tonight is also unlikely to shift rate cut expectations, as key surveys continue to indicate a weakening economy and cooling inflation. Attention will now turn to next week's US job openings data ahead of the FOMC meeting. Signs of further cooling in the job market may prompt the Fed to adopt a more dovish tone, reinforcing market expectations of rate cuts and potentially boosting the ringgit to trade below 4.65/USD. However, a potential 25 bps rate cut by the Bank of England may limit USD losses.

Technical Analysis

• The USDMYR outlook remained neutral, with the pair likely to hover near the 5-day EMA of 4.668 as its RSI sits in the middle of the range.

• As the short-term bias for the pair has remained neutral, the pair is projected to trade in the range of (S2) 4.648 – (R2) 4.690 next week.

Source: Kenanga Research - 26 Jul 2024