Despite Malaysia’s better-than-expected external trade reading, the ringgit depreciated by more than 0.7% week on week against the USD, MIDF noted this was primarily due to a sharp spike in the 10-year US Treasury yield amid hawkish US Fed narrative.
The narrowing of MY-US yield premium, coupled with domestic political uncertainty and the weakening of the yuan have further pressured the ringgit to trade near its all-time low of 4.77 against the dollar. Negative sentiment surrounding the domestic political situation and persistent dollar strength may continue to pressure the ringgit to trade around the 4.73-4.75 zone against the greenback.
The USD index is expected to hold ground and continue to trade around the 112.0-114.0 level due to the expectation that the US 3Q22 GDP may record decent growth. However, a more hawkish European Central Bank and a surprise move by the Bank of Japan may provide a temporary reprieve for the ringgit. Technically, MYR may see a short-term rebound due to its oversold position and trade around the 4.708 – 4.723 level.
However, a breach above the 4.754 resistance level may invalidate the local note’s upside potential.
