The yuan’s depreciation above the 7.20/USD threshold, driven by diminishing investor confidence in China’s economic growth, in light
of its weaker-than-expected trade figures and July’s deflationary reading of -0.3% YoY, has led to a weakening of the ringgit beyond
the 4.57/USD level.
“Additionally, despite a series of discouraging US economic data, which included subdued inflation figures and a rise in jobless claims, the anticipated decrease in the USD index (DXY) did not materialise,” said Kenanga Research (Kenanga) in the recent Economic Viewpoint Report.
This could be attributed to a lack of dovish conviction by the Fed speakers, a deeper-than-expected US federal budget deficit and the US ban on China’s tech.
While Kenanga anticipates no immediate increase in Malaysia’s political risk premium in the lead-up to tomorrow’s state elections, an unfavourable outcome combined with the possibility of a weaker-than-expected 2Q23 GDP reading due to subdued macroeconomic indicators might exert pressure on the ringgit in the coming week.
“On the external front, the direction of the local note is still expected to be influenced by the DXY’s trajectory, which is contingent on the
tone of the FOMC minutes and US macro readings,” said the research house.
Additionally, the direction of the yuan, which hinges on investor’s confidence in the Chinese economy, could also further impact the ringgit. The USDMYR pair outlook is neutral-to-bearish as its Relative Strength Index reading is approaching an overbought position. Technically, the ringgit is expected to trade range bound around the (S1) 4.566 – (R1) 4.589 level with an upside bias.
