Fundamental Overview

• After a marginal 0.2% WoW decline last Friday, driven by stronger- than-expected US retail sales data, the ringgit rebounded to 4.38 against the USD. This rally is supported by a robust domestic economic outlook, highlighted by strong 2Q24 GDP growth and double-digit export expansion. The ringgit also benefits from the broader weakening of the USD, with markets fully pricing in a September Fed rate cut, a view reinforced by a sharp downward revision in nonfarm payrolls, indicating a softer US labour market. Coupled with dovish signals from the latest FOMC minutes, these developments have spurred RM1.6b in inflows into Malaysia’s debt market, providing further support to the currency.

• The mounting evidence of a slowing US economy, cooling inflation, and weakening labour market sets the stage for a potentially dovish tone from Fed Chair Powell in his highly anticipated speech at Jackson Hole tonight. This could further pressure the USD index to hover around the 101.0 level, favouring the ringgit. With uncertainty lingering over the scale and frequency of the Fed's rate cuts, and the central bank remaining data-driven, markets will closely watch next week’s key US data, particularly core PCE. We expect continued capital inflows into Malaysia, supported by a strong domestic outlook, a slowing US economy, and the prospect of global monetary easing, aiding the ringgit’s appreciation.

Technical Analysis

• The USDMYR outlook has shifted to neutral-to-bullish, with the pair likely to hover around its 5-day EMA of 4.390.

• From a technical perspective, the pair is expected to trade within the range of (S2) 4.375 to (R2) 4.394 next week.

Source: Kenanga Research - 23 Aug 2024