The ringgit is likely to see another wild session next week, as the robust US dollar may continue to dim the local unit’s lustre until certainty emerges.
Although the domestic macroeconomy remained intact, the performance of the local unit continued to be adversely affected by external developments, an analyst said.
US Federal Reserve (Fed) chair Jerome Powell will be giving his speech at the Jackson Hole symposium on Aug 26, which could have a major impact on emerging-market currencies.
“Powell’s remarks could lend investors fresh insight into the central bank’s direction on rates and inflation.
“July’s minutes indicate further need for interest rate hikes as inflation continues to pose significant risk to the economy,” the analyst told Bernama.
The US will also release its gross domestic product (GDP) estimate for the second quarter of 2022 (2Q22) on Aug 25.
According to the advance estimate by the Bureau of Economic Analysis, US GDP decreased at an annual rate of 0.9% in 2Q22. It eased 1.6% in 1Q22.
ActivTrades analyst Alexander Londono said the US personal consumption expenditures (PCE) reading to be released on Aug 24 is the Fed’s favourite inflation indicator.
“The Fed’s minutes showed a central bank that is determined to lower inflation in the US, and with the labour market really strong, the probability of more aggressive tightening has risen.
“If the PCE reading surprises on the upside, the US dollar/ringgit pairing may be heading higher, maybe towards the 4.50 level, a zone that has not been visited since 2016.”
“The 4.45 level could act once again as a support in case the pair retraces to the downside,” he noted.
Bernama cited investors were also digesting not-so-bright data released recently.
During the week just ended, the People’s Bank of China unexpectedly reduced its key policy rates for the first time since January, slashing the one-year medium-term lending facility by 10 basis points to 2.75%, as the country struggled with slowing economic growth.
This was followed by data showing construction of new homes in the US hit 18-month lows in July.
The data pointed out that new residential construction in the US fell 9.6% last month to 1.45 million, suggesting that the real estate market was struggling more than expected, and this could generate further inflation.
On Thursday (Aug 18), some hope emerged after US initial jobless claims slipped to 250,000 last week, down from the revised 252,000 recorded in the previous week. However, market uncertainty remained.
As a result, the ringgit was in a negative tone for five straight days, with its value remaining at the lowest level since January 2017.
On Friday, the ringgit dropped against the greenback to 4.4760/4795, compared with 4.4435/4455 a week earlier.
The local note, however, traded stronger against a basket of major currencies.
It surged against the yen to 3.2767/2795 from 3.3292/3310 previously, and improved significantly against the pound to 5.3126/3167 from 5.3975/3999.
The local unit appreciated against the Singapore dollar at 3.2225/2254 from 3.2406/2428 last week, and soared versus the euro to 4.5069/5104 from 4.5759/5780.