Fundamental Overview

• As projected in our previous FX report, last Friday’s weaker-than- expected US jobs report has substantially influenced expectations for the Fed’s policy direction, with the market now pricing in a 50 bps rate cut in September. This shift has dragged the USD Index (DXY) down to 102.7 and pulled the 10-year US Treasury yield below 3.8% on Monday, driving the ringgit to a stronger-than- expected level of 4.43/USD. Subsequently, the ringgit corrected to around 4.70-4.50 as the DXY rebounded above 103.0, spurred by a recovery in US services sector activity, which eased recession fears. Additionally, a tech-driven sell-off and the unwinding of yen carry trades have exerted further downward pressure on the DXY.

• While we remain bullish on the ringgit in the months, we believe that current US recession fears are overstated, and that the market is pricing in more Fed rate cuts than necessary. The lower-than- expected US weekly initial jobless claims yesterday, combined with a potential 0.2% MoM increase in US core inflation next week, could temper expectations for aggressive rate cuts, allowing the USD to regain some of its safe-haven appeal. Our projection remains for two rate cuts by the Fed, particularly given the political and geopolitical risks on the horizon. This environment may cause the ringgit to fluctuate between 4.45-4.55/USD in the coming weeks, with the MYR continuing to benefit from favourable domestic macro.

Technical Analysis

• The USDMYR outlook is neutral-to-bullish for next week, with the pair likely to gravitate towards its 5-day EMA of 4.486.

• Technically, the MYR is expected to exhibit mixed trading against the USD, with immediate resistance at (R1) 4.503.

Source: Kenanga Research - 9 Aug 2024