The ringgit extended its losses against the greenback as the USD index (DXY) soared above the 103.0 level amid US debt ceiling impasse. The DXY was also supported by upbeat US economic data and hawkish comments from a slew of Fed officials. Looking beyond the strong USD trend, the local note was also pressured by the depreciation of the yuan, which was mainly due to China’s floundering post-pandemic recovery. This was evidenced by China’s weaker-than-expected industrial production and retail sales data.
Despite some optimism regarding the progress of the US debt ceiling talks, the ringgit is expected to trade in the range of 4.50 – 4.60 as investors continue to steer clear of risk-sensitive assets. Moreover, a potentially hawkish statement by Fed Chair Powell today, could solidify the Fed’s higher-for-longer narrative, boosting demand for the USD. Additionally, a potential escalation of US-China tensions, triggered by the recent US-Taiwan “21st Century” trade deal, may also contribute to the strengthening of the safe-haven USD, consequently weakening the ringgit.
Kenanga said the USDMYR outlook is bearish for next week, with the pair likely to trade near its 5-day EMA of 4.520 as its RSI is in an extremely overbought position above 90.0. Despite unfavourable fundamentals, the ringgit may experience some technical correction due to USD overbought position, with the pair projected to test (S1) 4.511 level. Inversely, a sustained break above the (R1) 4.552 level may signal USD’s bullish continuation.
