The ringgit strengthened sharply to 3.91 against the US dollar this week from 3.97 previously, supported by improving global risk appetite and a temporary unwinding of safe-haven demand for the greenback, according to a currency outlook report by Kenanga Investment Bank Berhad.
The research house said optimism surrounding a possible agreement between the United States and Iran, coupled with improving confidence over safe passage through the Strait of Hormuz, helped boost emerging market currencies, including the ringgit.
However, Kenanga noted that elevated oil prices and rising inflation expectations continue to reinforce the US Federal Reserve’s cautious policy stance.
As a result, short-dated US Treasury yields have remained supported, limiting further downside for the US dollar despite the improvement in broader market sentiment.
The report said investor attention is now shifting towards upcoming US payrolls and inflation data, which are expected to shape market expectations on the Federal Reserve’s next policy moves.
Kenanga added that even softer US labour market data may not significantly weaken the US dollar if oil-driven inflationary pressures continue to persist.
Markets are also closely monitoring developments in US-Iran negotiations ahead of US President Donald Trump’s planned visit to China on 14 and 15 May.
According to the report, any signs of a durable de-escalation in geopolitical tensions could influence oil prices, Federal Reserve expectations and sentiment towards emerging market foreign exchange.
Kenanga said its baseline scenario assumes that US-Iran negotiations will continue without a definitive breakthrough in the near term, keeping oil prices elevated and inflation risks persistent globally.
The research house expects this environment to sustain relatively firm US yields and preserve underlying support for the US dollar despite intermittent rallies in risk assets.
Nonetheless, it said Malaysia remains comparatively insulated from external pressures and projected the US dollar-ringgit exchange rate to trade within a cautious range of 3.93 to 3.96 next week.
From a technical perspective, Kenanga said the USDMYR pair remains neutral, centred around the 3.90 to 3.95 range.
