Despite pushback from Fed members against market expectations of at least six rate cuts next year, the ringgit has appreciated to around the 4.65 level against the USD. Broking house Kenanga says this can be primarily attributed to the market’s strong conviction that the Fed will pivot towards monetary easing as early as 1Q24. Additionally, the expectation that the BNM may maintain the overnight policy rate throughout 2024 has further contributed to the ringgit’s strength.
However, the local note’s gains were capped by weaker-than- expected Malaysia trade figures and the depreciation of the yuan.
The persistent narrowing of the 10-year MY-US government bond yield differential, driven by the Fed’s dovish narrative, is expected to continue benefitting the ringgit next week. If tonight’s core PCE data turns out to be lower than the consensus of 0.2% MoM (Oct: 0.2%), it may solidify expectations of early rate cuts by the Fed, potentially boosting the ringgit to strengthen below the 4.60/USD threshold. Despite the absence of significant catalysts heading into the holiday-shortened trading week, the ringgit could gain additional support from the weakening of the USD resulting from month-end rebalancing activity.
The house is of view the USDMYR’s neutral outlook is expected to continue for the week ahead, with the pair likely to hover around its 5-day EMA of 4.659. Technically, the pair is expected to fluctuate within the range of 4.626 – 4.677 next week. However, the potential downside of the USD may push the pair to trade below the 4.609 level.
