The ringgit remained broadly stable against the US dollar following the US Federal Reserve’s latest policy decision, with post-meeting weakness in the greenback offsetting lingering geopolitical risks stemming from tensions in the Gulf, according to Kenanga Research.
The research house said the local currency traded near the 4.09 level against the US dollar after the Federal Reserve left interest rates unchanged, a move that prompted investors to unwind defensive US dollar positions accumulated ahead of the meeting.
The Federal Reserve voted 9-3 to keep interest rates unchanged, while Chair Kevin Warsh noted that tighter financial conditions had already delivered part of the monetary restraint required to moderate the economy.
Following the decision, the US Treasury yield curve steepened and the US dollar weakened as investors reassessed the outlook for interest rates.
Kenanga noted that weaker-than-expected second-quarter US GDP growth and softer core Personal Consumption Expenditures (PCE) inflation reinforced expectations that the Fed would remain on hold for an extended period despite the hawkish dissent from three policymakers.
The softer US dollar helped support the ringgit, largely offsetting concerns over higher energy prices linked to ongoing tensions in the Gulf region.
Looking ahead, Kenanga said investor attention will shift to the upcoming US labour market data, which is expected to provide fresh clues on the Federal Reserve’s next policy move.
Market consensus points to stronger payroll growth compared with June, although there is also a possibility that the unemployment rate could edge higher.
The research house said the employment report will play a key role in shaping expectations for the September Federal Open Market Committee (FOMC) meeting after policymakers offered limited forward guidance this week.
At the same time, geopolitical developments in the Middle East remain a major swing factor for financial markets.
Kenanga warned that any escalation involving Iran-backed regional groups could lift global oil prices, revive safe-haven demand for the US dollar and place renewed pressure on regional currencies, including the ringgit.
Kenanga’s base-case scenario assumes that tensions in the Gulf remain elevated but stop short of disrupting global energy supplies.
The research house believes moderating US wage growth, easing inflation and softer housing costs should allow the Federal Reserve to maintain its pause in interest rate hikes, although the dissenting votes leave open the possibility of another increase in September should economic conditions strengthen.
Against this backdrop, Kenanga expects the US dollar-ringgit exchange rate to trade within a narrow range of 4.08 to 4.10 in the near term, with risks tilted towards modest weakness in the Malaysian currency.
From a technical perspective, the research house maintained a neutral outlook, identifying 4.08 as the key support level, while a decisive move above 4.10 could see the exchange rate test 4.11.
