Despite not being as strong as expected, the ringgit appreciated against the USD, trading near the 4.74/USD level this week, mainly due to the softer U.S. jobs report last Friday.
Kenanga Investment Bank’s (Kenanga) Economic Viewpoint note today (May 10) said initially, the USD index (DXY) fell below the 105.0 mark but quickly rebounded, benefiting from a lower volatility environment and US-Europe monetary policy divergence.
Despite the lack of pro-USD catalysts, the Riksbank’s rate cut and the BoE’s dovish leaning boosted demand for the safe haven, high-yielding greenback.
In Malaysia, BNM’s decision to maintain the policy rate and the solid retail sales reading also helped to prop up the ringgit.
Emerging evidence of US labour market softness, such as the rise in US weekly jobless claims, has triggered another recalibration in the Fed’s rate expectations, Kenanga said.
Now, two cuts in 2024 are back on the table. This, coupled with stable domestic unemployment rate and expected solid IPI readings today, may support the ringgit to trade around the 4.73/USD level.
Focus will shift to key US macro data next week, namely CPI, PPI, and retail sales.
Any downside surprise, especially regarding inflation, may convince the market and Fed hawks that the policy rate has been restrictive enough and that a rate cut should be initiated soon.
This potential development may help to pull the DXY below the 105.0 mark and benefit the ringgit.
The outlook for the USD/MYR pair remains neutral-to-bullish, with the pair expected to trade near its 5-day EMA of 4.741.
Technically, the pair is projected to fluctuate within the range of (S1) 4.733 – (R1) 4.739 next week. However, if US key data surprises on the upside, it could drive the pair above the (R2) 4.744 level, Kenanga added.
