Ringgit Weekly Outlook - 1 September 2023

Cautious trading with an upside bias ahead of the US non-farm payroll release

The appreciation of the yuan following market speculation of more stimulus measures by the Chinese government and the People’s Bank of China’s FX intervention has helped the ringgit to recoup some of its losses against the USD. In addition, the weakness in the US labour market as evidenced by below-consensus readings in JOLTS job openings and ADP private payrolls has dragged the USD index (DXY) below 104.0, which has bolstered the ringgit. However, the DXY remains buoyed around 103.5 due to solid US consumer spending and elevated core PCE print (4.2% YoY; Jun: 4.1%).

Despite a slew of weak US economic data this week, the market may continue to hold the USD ahead of the US non-farm payroll reading tonight. A lower-than-expected reading (consensus: 170.0k; July: 187.0k) could spark a dovish repricing in US interest rate futures, significantly weakening the DXY. Risk-on currencies including the ringgit should benefit as this would undermine the Fed's argument that rates need to remain high for some time due to the ultra-hot job market. On the domestic side, the BNM is expected to keep the OPR unchanged at 3.00% and maintain their data-dependent approach, which should also benefit the ringgit.