Fundamental Overview

• In line with our outlook, the ringgit appreciated towards the 4.70/USD level, initially buoyed by the soft core PCE reading last Friday. However, the local note faced brief pressure due to increased likelihood of a Trump victory this November. This concern was short-lived, as the diminishing political risk premium in Europe, combined with weakening ISM manufacturing and services figures, exerted downward pressure on the USD index (DXY). Despite higher job openings, signs of weakness in the US economy continue to bolster the case for a rate cut in September, benefiting the ringgit.

• As the weekend approaches, investor attention will pivot to tonight's nonfarm payroll (NFP) data and the outcome of the French election on Sunday. While political risks in the EU persist, a potentially weaker NFP reading (Consensus: 190.0k) tonight, alongside softer US CPI readings next week, may heighten expectations of Fed rate cuts, further pressuring the DXY. Domestically, the ringgit could remain supported by BNM's policy status quo and a favourable macroeconomic outlook, provided retail sales and IPI readings remain strong. Overall, we maintain a positive outlook for the ringgit in the coming week, though some investors may still favour the USD as long as Trump leads in the polls.

Technical Analysis

• The outlook for USDMYR next week is neutral, with the pair expected to hover around its 5-day EMA of 4.713.

• Technically, the pair may trade within the range of (S1) 4.705 to (R1) 4.717. However, any upside surprises in key US economic data and political uncertainties could weaken the MYR.

Source: Kenanga Research - 5 Jul 2024