Fundamental Overview

• The ringgit initially depreciated to around 4.37/USD on Monday, following Friday’s US jobs report, which failed to convince markets of a 50 bps rate cut, prompting a USD rebound. It then stabilised at around 4.33–4.34, buoyed by a favourable result from the US Presidential debate, which reduced the perceived chances of a Trump victory, limiting USD gains. Although core inflation surged to 0.3% MoM (Consensus: 0.2%), markets continue to price in a total of 100 bps in Fed cuts for the year, while the yield curve remains dis-inverted, signalling slower growth ahead. Domestically, strong retail sales and IPI readings helped support the ringgit.

• Despite mixed signals from the US economy, we maintain our forecast for a 25 bps cut by the Fed next week, as it is key to securing a soft landing. A 50 bps cut is now off the table due to persistent inflation, strong credit demand, and a falling unemployment rate. Market attention will turn to the Fed's dot plot and updated economic projections to guide the future rate path. We anticipate signals of an additional 50-75 bps cut later this year, slightly less than market expectations of 75-100 bps, which could strengthen the USD and push the ringgit above 4.35. Additionally, China’s expected rate cuts on over 5.0t in outstanding mortgages could further shape market sentiment and influence ringgit's path.

Technical Analysis

• The USDMYR outlook remains neutral, with the pair likely to consolidate near its 5-day EMA of 4.334.

• The pair may fluctuate within a broad range, between (S2) 4.290 and (R2) 4.389, contingent on the Fed’s tone and forward guidance.

Source: Kenanga Research - 16 Sep 2024