Despite the sharp decline in the USD index towards the 104.0 level following the release of softer-than-expected US inflation readings, the ringgit only experienced a modest appreciation of 0.11% on a week-on-week basis on 17 Nov against the greenback. The dovish repricing of future Fed rates, with the first anticipated cut likely in May 2024, has not contributed substantially to the strengthening of the local note below the 4.60/USD threshold. The market is waiting for stronger evidence of a weakening US economy before considering an increase in exposure to high-risk assets.
The improvement in the risk environment, stemming from a reduction in US-China tensions and the avoidance of a US government shutdown may help to bolster the ringgit to trade below the 4.65/USD next week. However, the disconnect in US macro data, as seen with stronger-than-expected retail sales but a weaker-than-expected labour market, is expected to persist, preventing the establishment of a sustained USD bearish trend.
Next week, market attention will shift to the FOMC minutes, with a keen focus on any dovish signals. If such signals emerge, it could have a positive impact on the ringgit. Domestically, the 3Q23 GDP reading today surpasses expectations.
The USDMYR outlook remained neutral, with the pair likely to hover near its 5-day EMA of 4.688. The pair is expected to trade within the range of 4.644 – 4.736 next week. Nevertheless, there are lingering downside risks to the local currency.
