U.S. Dollar Demand May Keep Ringgit Above 4.70, Especially If U.S. Fed Signals Tighter-For-Longer Policy

Despite the unexpectedly robust nonfarm payroll and the hotter-than-expected U.S. core inflation readings, the ringgit traded stronger, hovering around the 4.678 – 4.686 level against the USD from Monday to Thursday.

The USD index (DXY) did not surge as it had in last month’s above-consensus release, possibly due to the ambiguous nature of the job report.

Kenanga Investment Bank (Kenanga), in its Economic Viewpoint today (Mar 15), said the ringgit’s resilience can partly be attributed to strong domestic readings (i.e. IPI), signalling brighter growth prospects for Malaysia.

Additionally, government efforts to repatriate foreign investment income and interventions by the BNM could also be supporting the strength of the ringgit.

The ringgit is currently back above the 4.70/USD threshold, propelled by both the DXY and the 10-year US Treasury edging higher. This surge comes amid escalating uncertainty over Fed rate cut expectations, fuelled by key US data such as the PPI.

As the market braces for the upcoming FOMC meeting, the allure of the safe-haven USD may persist, particularly in light of the US economy’s persistent resilience.

Unless clear indicators of an imminent downturn emerge, USD bears may remain in hibernation, particularly with expectations that the Bank of Japan may defer any significant moves until April, rather than acting next week.

However, potential support for the ringgit could materialise if China’s key data releases and Malaysia’s trade figures exceed expectations.

Measures the speed and magnitude of a security’s recent price changes to evaluate overvalued or undervalued conditions. A reading of 80 or above indicates an overbought situation while a reading of 20 or below indicates an oversold condition.

EMA (5): 5-day Exponential Moving Average

The exponential moving average (EMA) indicator gives more weight to the most recent periods, places more emphasis on what has been happening lately. Old data points retain a multiplier even if they are outside of the selected data series length.

The USD-MYR outlook is neutral next week, with the pair expected to hover around its 5-day EMA of 4.695.

Technically, the pair may trade in the range of (S1) 4.687 – (R1) 4.713. However, higher demand for USD may weaken the MYR, Kenanga added.

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