Fundamental Overview

• The ringgit traded within a relatively stable range this week, initially weakening to above 4.45/USD on Monday, due to stability in the US equity market. However, it later firmed up, trading between 4.42-4.44 against the USD as global sentiment improved following softer US inflation prints. The USD index dipped below 102.6 after the inflation release, while the 10-year US Treasury (UST) yield fell below 3.85%, as markets fully priced in a September rate cut. To note, the narrowing of the 10-year MGS-UST negative yield differential to an average of -10.8 bps this week (last week: -16.3 bps) has helped attract RM2.3b inflows into Malaysia’s domestic debt market, bolstering the ringgit.

• Resilient US consumer spending, evidenced by a stronger-than- expected 1.0% MoM retail sales increase and a drop in jobless claims, reinforces our view that recession fears are overblown. The market has recalibrated its expectations, now anticipating a 25 bps cut (>70% probability) at the September FOMC meeting instead of a 50 bps cut. Next week, focus will shift to key Fed speeches for dovish signals ahead of the Jackson Hole event on August 22-24. With uncertainty over the scale of the Fed's rate cut, the ringgit may experience some volatility but should remain range-bound around 4.43 – 4.46 against the USD, with potential upside if domestic macro conditions further improve.

Technical Analysis

• The USDMYR outlook has turned neutral, with the pair expected to trade near the 5-day EMA of 4.442.

• With this neutral short-term bias, the pair is projected to trade within the range of (S2) 4.404 to (R2) 4.472 next week.

Source: Kenanga Research - 16 Aug 2024