The ringgit strengthened near the 4.50/USD threshold on July 31, supported by the yuan’s appreciation amid stronger PBoC’s daily fixing, and market expectations of weak US macroeconomic readings.
The Ringgit seems to teeter between gains and losses amid US and China’s uncertain fundamental overview, cited Kenanga Investment Bank’s Economic Viewpoint today (Aug 4).
However, these gains were short-lived as the local currency depreciated above the 4.55 level on August 3. This depreciation could be attributed to China’s weak manufacturing PMI reading and the USD index (DXY) rising above the 102.0 level due to increased safe-haven demand following Fitch’s downgrade of the US credit rating and better-than-expected private sector job data.
While Kenanga partly agree with Fitch’s view on the US fiscal conditions due to its ballooning debt burden, the bank does not believe this downgrade will have any material long-term impact on the USD.
Kenanga’s stance on the projection of the DXY remains neutral-to-bearish, as they expect the Fed to have reached an end of its hiking cycle. Any downside surprise to the US non-farm payrolls reading tonight should solidify Kenanga’s expectations, leading to a stronger ringgit.
However, without intervention and stimulus by the Chinese government, the yuan may continue to weaken due to its weak macro landscape, exerting pressure on the ringgit.
Technical Analysis
▪ The USDMYR outlook continued to remain neutral and is likely to hover around its 5-day EMA of 4.544 as the pair’s RSI is in the middle of the range (See ST Technical table).
▪ Technically, a sustained move over (R1) 4.569 should signal the presence of sellers for the MYR, while a sustained dip below the (S1) 4.520 level may suggest a return of risk-on in the FX market.
