The Malaysian ringgit weakened to around RM4.07 against the US dollar, pressured by stronger-than-expected US economic data and growing expectations that the US Federal Reserve may maintain a higher-for-longer interest rate stance.
According to an analysis by Kenanga Research, the stronger US macroeconomic backdrop has boosted demand for the greenback as investors scaled back expectations for near-term Fed rate cuts and adjusted to higher US Treasury yields.
The US dollar’s recent strength was supported by resilient employment conditions and persistent inflation concerns, reinforcing the view that the Fed may keep monetary policy restrictive for an extended period.
Kenanga said the ringgit came under pressure as global investors maintained defensive positions towards emerging market currencies amid uncertainty over monetary policy direction and geopolitical developments.
“FX positioning remained USD supportive as investors maintained defensive EM allocations while awaiting greater clarity on both geopolitical and policy fronts,” the research house said.
Lingering uncertainty surrounding geopolitical tensions, particularly in West Asia, has also encouraged investors to favour safe-haven assets, adding further support to the US dollar.
Investor focus will now turn towards upcoming central bank meetings involving the Federal Reserve and Bank of Japan, alongside the release of key economic indicators including US retail sales and Malaysia’s industrial production and retail sales data.
Markets will closely assess whether Fed officials are shifting towards a more neutral policy stance or continuing to signal a cautious approach towards easing.
Kenanga noted that stronger US activity data could reinforce expectations that interest rates will remain elevated for longer, providing further support for the greenback.
Domestically, investors will monitor Malaysia’s economic indicators for confirmation that growth momentum remains resilient despite a recent rise in unemployment.
Kenanga maintained that its baseline outlook assumes the Fed will remain patient while geopolitical risks remain elevated but manageable.
“Stable US employment and lingering inflation concerns should keep US yields elevated and preserve USD support,” the research house said.
The firm expects investors to remain cautious towards emerging market currencies until clearer signs emerge of a Fed policy pivot or meaningful progress on geopolitical developments.
For the ringgit, Kenanga expects the USD/MYR pair to trade within the 4.05 to 4.07 range, with risks tilted towards further near-term weakness.
From a technical perspective, USD/MYR remains near overbought territory, with immediate resistance seen at 4.07 and support at 4.05.
The research house said a sustained move above the resistance level could signal further ringgit depreciation, while stronger domestic fundamentals or a shift in US monetary policy expectations could provide support for the local currency.
