Ringgit Sell-Off To Persist Ahead Of U.S. Key Macro Data: Kenanga Research

Closeup of Malaysia Ringgit currency notes and coins

The recent shift in global risk sentiment, driven by escalating  tensions in the Middle East and persistent vulnerabilities in the  Chinese economy, has push the ringgit to once again breach the  4.70/USD threshold.

Kenanga Investment Bank Berhad, in its Economic Viewpoint note today (Jan 19), said this was exacerbated by the pushback from  Fed officials against an early easing cycle, coupled with a robust  performance in US retail sales.

Despite the better-than-expected US  macro readings, the USD index exhibits a relatively subdued  response, attributable in part to the enduring strength of the equity  market. Additionally, risk assets have suffered setbacks due to the  market’s tempered expectations for Fed rate cuts.

The ringgit may continue to trade weak around the 4.70 level  against the USD, driven by an unfavourable risk environment  marked by geopolitical uncertainty, the waning Fed rate cut  expectations, and China’s lack of definitive stimulus measures.  Nevertheless, the MYR may benefit from a potential hawkish shift in  the BoJ’s monetary policy direction and if the US 4Q23 GDP data  unfolds weaker than expected.

Attention will also be directed  towards the US Core PCE reading, as investors search for indications  of a cooling US economy. To add, Malaysia’s stable inflation outlook,  stronger 4Q23 GDP estimate reading and the BNM’s commitment  to maintaining the status quo may continue to support the ringgit.

Kenanga said the technical outlook for the USDMYR is bearish, with the pair  expected to hover around its 5-day EMA of 4.703. The pair may hover in a range of (S1) 4.686 – (R1) 4.734 next week.  However, a shift in risk sentiment may help to prop up the up the MYR.

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