The ringgit appreciated sharply against the USD, reaching a level not seen in almost a year, with its strongest week-on-week gain (1.9%) since July 2023, primarily due to a weaker greenback. The USD index (DXY) was pressured to trade near the 104.0 level while the 10-year US Treasury (UST) yield trended below 4.00%, narrowing the MGS-UST negative yield differential to 28.1 bps (last week's average: -45.3 bps). Fed Chair Powell's hint at a potential rate cut in September, amid signs of cooling inflation, led to a record RM5.3b in foreign inflows into the Malaysian bond market this week, significantly boosting the ringgit. Additionally, the BoJ's surprise rate hike and hawkish stance further weakened the DXY.
The limited negative impact on the GBP from the Bank of England's recent rate cut, coupled with continued signs of a US economic slowdown as evidenced by the weak ISM manufacturing index (46.8 vs. Consensus: 48.8), may continue to pressure the DXY downward, potentially strengthening the ringgit to trade well below 4.55/USD. A disappointing non-farm payrolls number and a rise in the unemployment rate could heighten market expectations of multiple Fed rate cuts, reinforcing our soft-USD narrative. With no major catalysts next week, the market may focus on Fed speakers’ tone, geopolitical developments in the Middle East, and domestic macroeconomic readings.
Technical Analysis
With the USDMYR's RSI in oversold territory, a bullish move toward its 5-day EMA of 4.590 is expected.
A technical correction may see the pair trade lower against the USD next week, facing immediate resistance at (R1) 4.609.
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