Ringgit To Trade Cautiously Amid US Debt Ceiling Crisis: Kenanga

For the first time since November 2022, the ringgit depreciated above the 4.60 psychological threshold against the USD, primarily due to a sharp increase in the USD index above the 104.0 level amid the ongoing US debt limit stalemate. Furthermore, the local note has come under pressure as the differential between MY-US 10-year government bond yields turned negative for the first time since the US banking crisis in March, partly as a result of Fitch putting the US sovereign credit on a negative watch.

There are a lot of uncertainties that may influence the trajectory of the ringgit next week. The ringgit stands to gain significantly if President Biden and House Speaker McCarthy reached some kind of agreement on the debt ceiling issue. That being said, the market may also keep an eye on US job reports, in which a better-than-expected reading may prompt an upward readjustment of the Fed’s monetary policy outlook, benefiting the USD. Additionally, the ringgit could face pressure from the ongoing weakness of the yuan due to waning optimism over China’s economic recovery.

Research house Kenanga if the view that the USDMYR outlook will remain bearish for next week, with the pair likely to trade near its 5-day EMA of 4.597 as its RSI is in an extremely overbought position above 95.0. Hence, the pair may trade below the 4.600-level, hovering around the 4.575 level, contingent on whether a debt deal is reached. However, the USD may extend gains and trade between 4.652 – 4.678 if UST yields continue to tick higher.

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