Kenanga Research & Investment

Ringgit Weekly Outlook - May Continue to Benefit From Further Dovish Pricing of the Fed

Publish date: Fri, 24 Mar 2023, 11:21 AM

Fundamental Overview

▪ Despite Fed’s decision to raise rate by another 25 basis points (bps), the ringgit appreciated by more than 1.8% WoW (as of Thursday) against the USD. This was mainly due to the weakening of the USD index near the 102.0 level following the Fed's recent shift in language from hawkish to moderately dovish, partly due to the ongoing banking crisis. The local note was also supported by Malaysia’s better-than-expected exports reading of 9.8% YoY (consensus: 4.7%) and the strengthening of the yuan.

▪ The ongoing US regional banking crisis may result in the market further pricing in a more dovish stance from the Fed, leading to the strengthening of risk-on currencies including the ringgit against the greenback. It is worth noting that the money market is currently factoring in four 25 bps cuts starting in July, which will bring the Fed fund rate down to 4.0% by end-2023. However, if the commodities market continues to be affected by the crisis, the ringgit may have to give up some gains.

Technical Analysis

▪ The USDMYR pair's outlook is neutral-to-bullish, with the pair expected to trade around its 5-day EMA of 4.443 as the pair’s RSI is nearing its oversold position (See ST Technical table).

▪ Technically, the USD may see some upward momentum if the market turns risk-averse, with an immediate resistance observed at (R1) 4.463 level. Inversely, a sustained move below the (S1) 4.395 level may suggest an extension of the bearish USD trend.

Source: Kenanga Research - 24 Mar 2023

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