Ringgit Outlook Remains Neutral To Bullish

MYR jumped by 0.7% and traded below the 4.36 threshold against the USD on Thursday for the first time in more than eight months. The key drivers of the ringgit’s strength were Malaysia’s better-than-expected IPI reading of 4.8% YoY (consensus: 2.9%) and the sharp appreciation of the yuan due to China’s reopening optimism. However, the local note weakened against other major currencies due to US cooling inflation (6.5% YoY; Nov: 7.1%).

Kenanga Investment believes the ringgit may extend its gains against the USD next week as the greenback may continue to track a bearish trend as the expectations of a Fed pivot in 2H23 solidify amid US moderating inflation rate and weak economic outlook. On top of that, the local note may also benefit from an expected 25 basis point rate hike by the Bank Negara Malaysia and a further tightening by the Bank of Japan. Nevertheless, a potential slowdown in China’s 4Q22 GDP and a possible rate cut by the People’s Bank of China may weaken the yuan and limit the ringgit’s upside

The USDMYR pair’s outlook remained neutral-to-bullish for next week, with the pair likely to hover around its 5-day EMA of 4.369 as the pair’s RSI is nearing its oversold position. Hence, the pair is projected to trade in the range of 4.349 –
4.379. However, the USD may regain some losses if the US Treasury yields tick higher after a series of auctions next week.

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