The ringgit weakened against the US dollar, trading at around RM4.12 per US dollar, as a more hawkish shift by the United States Federal Reserve reinforced expectations that interest rates would remain elevated for longer.
Kenanga said the US dollar strengthened after markets reduced expectations for monetary easing and repriced higher US yields following the Fed’s more cautious stance on rate cuts.
The firm noted that the ringgit came under pressure as investors adjusted their positions in favour of the greenback, with defensive allocations remaining in place amid expectations of a prolonged period of restrictive US monetary policy.
“Improved US-Iran relations and softer oil prices were insufficient to offset the impact of a more hawkish Federal Reserve outlook,” Kenanga said.
The firm added that foreign exchange markets continued to favour the US dollar as investors scaled back expectations of near-term Fed easing and maintained caution towards emerging market currencies.
Attention next week will turn to the release of the US core personal consumption expenditures (PCE) inflation data, which is expected to show a 0.3% month-on-month increase.
Kenanga said investors will assess whether inflation remains firm enough to justify the Fed’s extended pause in rate cuts and sustain risks of tighter monetary conditions.
Markets will also monitor developments surrounding US-Iran negotiations, particularly whether progress can be maintained during the 60-day negotiation period.
The firm noted that any disruptions arising from the three-month closure of the Strait of Hormuz could also have longer-term implications on US economic activity and inflation trends.
Kenanga expects the US-Iran framework to remain broadly intact despite possible periods of renewed tension during negotiations.
However, the Fed’s stronger emphasis on price stability and reduced expectations for policy easing are likely to keep US yields elevated compared with other major economies.
“Investors are likely to remain cautious on emerging market currencies while reassessing the prospect of a prolonged Fed pause,” it said.
Kenanga expects the US dollar-ringgit exchange rate to trade within the RM4.10 to RM4.14 range, with risks tilted towards further near-term weakness in the ringgit.
From a technical perspective, USDMYR remains in a short-term uptrend above key moving averages, with resistance seen at 4.14 and support at 4.07.
