Kenanga Research expects the ringgit to strengthen towards RM4.07 against the US dollar next week, although renewed expectations of another US Federal Reserve interest rate hike could limit gains in the local currency.
In its latest currency report, Kenanga said the ringgit traded at RM4.086 against the greenback on Thursday, slightly weaker than RM4.082 the previous Friday, as hawkish remarks from Federal Reserve officials supported demand for the US dollar.
Comments from Fed officials Austan Goolsbee, Alberto Musalem and Thomas Barkin revived expectations of another US interest rate increase this year, with Barkin warning that one hike might not be sufficient.
The US Dollar Index (DXY) climbed above 101, supported by firm bond yields, stronger business activity indicators and a rebound in oil prices.
Kenanga said the dollar’s resilience even when Brent crude briefly fell below US$100 per barrel suggested that interest rate expectations had become a more significant driver of currency movements than energy prices.
The research house said investors would closely monitor next week’s US core Personal Consumption Expenditures (PCE) inflation data and September employment report for further clues on the Fed’s interest rate outlook.
Consensus expectations point to approximately 100,000 new US jobs in September. Stronger-than-expected inflation or employment figures could reinforce expectations of another rate hike in October and extend the dollar’s rally.
Kenanga said it was reviewing its earlier assessment that September’s Fed rate increase would be the last of the year.
Nevertheless, the research house maintained its forecast for the ringgit to strengthen to RM3.95 against the US dollar by year-end.
It expects any pullback in the Dollar Index towards 100 to encourage selective buying of the ringgit, while developments in US-Iran negotiations and US-China trade relations could influence regional currencies.
From a technical perspective, Kenanga identified immediate support for the US dollar-ringgit exchange rate at RM4.079 and resistance at RM4.090.
