Fundamental Overview

• The ringgit continued to depreciate, trading within a narrow range of 4.30-4.31 against the USD this week, driven by growing expectations of a potential pause in the Fed's November meeting (~9.0%), amid an upbeat outlook for the US economy. This aligns with our projections, particularly after Fed Governor Waller urged caution regarding future rate cuts. The USD also benefited from safe haven flows due to the ongoing Middle East crisis. Additionally, China's stimulus efforts fell short of expectations, disappointing markets and triggering another wave of capital outflows, which weighed on sentiment and pressured Asian currencies. The 10-year MGS-UST spread has now widened to -30.0 bps.
• As noted in our previous FX report, the highly uncertain US election outcome and the risk of further escalation in the Middle East could push the ringgit towards 4.35 in the coming weeks. The USD may strengthen further if markets begin to price in the possibility of a Trump victory, particularly given his recent protectionist rhetoric. Yesterday's stronger-than-expected US retail sales data, coupled with the ECB's 25 bps rate cut, could also bolster the USD. While the ringgit may find some support from today's anticipated expansionary budget, pro-ringgit measures and China's improving macro readings, the market may continue to focus on US economic data and maintain long USD positions ahead of the election.

Technical Analysis

• The pair is likely to remain neutral-to-bearish, consolidating around its 5-day EMA of 4.302 as the RSI nears overbought levels.
• The ringgit is expected to face further pressure next week, testing resistance at (R1) 4.313 and (R2) 4.318 amid rising uncertainty.

Source: Kenanga Research - 18 Oct 2024