Kenanga Research expects the ringgit to trade around RM4.08 against the US dollar next week, with RM4.10 seen as the key upside risk as higher oil prices, hawkish US Federal Reserve signals and fragile market sentiment continue to underpin the greenback.
The ringgit closed Thursday at RM4.099 per US dollar, weakening from RM4.071 last Friday after the Fed raised interest rates by 25 basis points to a range of 3.75%-4.00%.
Kenanga said the unanimous rate increase and the Fed’s indication of another potential hike this year strengthened the dollar broadly, while the shutdown of Saudi Arabia’s East-West pipeline pushed Brent crude above US$105 a barrel, adding to inflation and interest-rate concerns.
The move sent two-year US dollar swap rates higher and pushed the US Dollar Index above 100, contributing to the ringgit’s decline to RM4.099.
“Elevated oil and market pricing of roughly three more hikes sustain the USD’s front-end rate advantage,” Kenanga said.
Although financial markets are currently pricing in around three additional US rate increases, well above the median projection indicated by Fed officials, Kenanga expects the latest move to ultimately prove to be a one-and-done hike.
The research house forecasts the Fed will subsequently keep rates unchanged through the end of 2027.
Against this backdrop, Kenanga acknowledged that its existing RM3.95 year-end US dollar-ringgit forecast has become more difficult to achieve, although it continues to expect the broader direction to favour a stronger ringgit over time.
It said investors are likely to remain defensive until expectations for further Fed tightening ease or geopolitical tensions in the Gulf show signs of de-escalation.
Meanwhile, the Bank of Japan raised its policy rate by 25 basis points to around 1.25%, in line with Kenanga’s expectation, while signalling that further increases remain possible amid upside risks to underlying inflation.
Kenanga said attention would now turn to Bank of Japan Governor Kazuo Ueda’s remarks for further guidance on the pace of future tightening.
A commitment to a quarterly tightening cycle could reinforce expectations of another increase in December and support the yen, while a more cautious tone could push the US dollar-yen exchange rate above 157, it added.
With relatively limited major US economic data scheduled for next week, Kenanga expects markets to focus more closely on comments from Fed officials and developments surrounding the US-Iran conflict.
From a technical perspective, Kenanga said ringgit momentum had improved after the post-Fed spike in the US dollar began to fade, identifying RM4.071 as support, while RM4.094 represents a key resistance level.
