The UK disinflationary story, dovish Europe Central Bank repricing and Bank Of Japan’s Governor Ueda’s signal to maintain ultra-easy policy have all contributed to boost the USD index (DXY) back above the 100.0 level, weakening the local note from its last Friday’s level of 4.527.
“The ringgit has continued to depreciate to 4.543 against the USD on Thursday, despite a surge in yuan amid reports of government intervention. However, the ringgit’s losses were capped by weaker-than-expected US retail sales and industrial production readings,” said Kenanga Research (Kenanga) in the recent Economic Viewpoint Report.
The direction of the ringgit for next week will be primarily influenced by the outcome of the Fed’s July Federal Open Market Committee (FOMC) meeting.
While the house expects the Fed to keep rates unchanged at 5.25%, given signs of disinflation and emerging cracks in the labour market in the US, a majority still expects a 25 basis point hike.
This potential rate increase could bolster the DXY to trade above the 101.0 level. On the other hand, if the Fed decides to maintain the status quo or provide dovish guidance, it should help the ringgit to appreciate near the 4.50/USD level.
Additionally, the market will also closely monitor the policy direction of the European Central Bank and Bank Of Japan. The USD/RM outlook is bullish-to-neutral for next week, with the pair expected to trade near its 5-day exponential moving average of 4.554 as its relative strength index approaches the middle range.
Technically, the pair is projected to hover in a tight range of 4.544 – 4.565 next week. However, should there be any safe-haven buying interest post-FOMC meeting, the pair may trade higher around the (R2) 4.572 level.
