The ringgit traded broadly unchanged against the US dollar at around 4.09/USD, as escalating geopolitical tensions in the Middle East offset expectations of softer US inflation and a more dovish monetary policy outlook, according to Kenanga Research.
In its latest currency market commentary, the research house said renewed tensions in the Middle East, coupled with fresh threats to shipping routes in the Red Sea, continued to support higher energy prices and underpin demand for the US dollar as a safe-haven currency.
Despite easing inflation expectations in the United States, the ringgit remained largely range-bound as investors maintained defensive positions ahead of key global central bank meetings and further developments in the geopolitical landscape.
Kenanga noted that markets are increasingly pricing in the possibility that the US Federal Reserve could maintain a restrictive monetary policy stance for longer, as higher energy prices raise concerns over renewed inflationary pressures.
“Investors held defensive US dollar positions while awaiting greater clarity on geopolitical developments and the Federal Reserve’s policy direction,” the research house said.
Looking ahead, Kenanga expects investor attention to centre on next week’s Federal Open Market Committee (FOMC) meeting, where it forecasts the Fed will leave interest rates unchanged at 3.50% to 3.75%.
The research house said markets will also closely monitor monetary policy decisions from the Bank of England (BoE) and the Bank of Japan (BoJ), alongside the release of the US advance second-quarter GDP data and core Personal Consumption Expenditures (PCE) inflation figures for further clues on the direction of US monetary policy.
Domestically, Kenanga said Malaysia’s retention of the 10% US Section 301 tariff rate, together with broad exemptions for key export sectors, should help cushion medium-term risks to the country’s external trade performance.
Kenanga’s base-case scenario assumes geopolitical tensions in the Gulf remain elevated but do not escalate into a prolonged disruption of global energy supplies.
The research house continues to expect the Federal Reserve to remain on an extended pause, despite markets assigning higher probabilities to further interest rate hikes.
“Investors are likely to retain defensive US dollar exposure until geopolitical risks ease and inflation concerns moderate,” it said.
Kenanga expects the USD/MYR exchange rate to trade within the 4.09 to 4.10 range in the near term, with risks tilted towards modest weakness in the ringgit.
From a technical perspective, the research house said the USD/MYR remains constructive above the 4.09 support level. A sustained move above 4.10 could open the way towards 4.11, while 4.09 is expected to provide immediate support.
