Ringgit Weekly Outlook - 10 May 2024

Potential for further gains if US inflation data falls below consensus

Despite not being as strong as expected, the ringgit appreciated against the USD, trading near the 4.74/USD level this week, mainly due to the softer US jobs report last Friday. Initially, the USD index (DXY) fell below the 105.0 mark but quickly rebounded, benefiting from a lower volatility environment and US-Europe monetary policy divergence. Despite the lack of pro-USD catalysts, the Riksbank's rate cut and the BoE’s dovish leaning boosted demand for the safehaven, high-yielding greenback. Domestically, the BNM’s decision to maintain the policy rate and the solid retail sales reading also helped to prop up the ringgit.

Emerging evidence of US labour market softness, such as the rise in US weekly jobless claims, has triggered another recalibration in the Fed's rate expectations. Now, two cuts in 2024 are back on the table. This, coupled with stable domestic unemployment rate and expected solid IPI readings today, may support the ringgit to trade around the 4.73/USD level. Focus will shift to key US macro data next week, namely CPI, PPI, and retail sales. Any downside surprise, especially regarding inflation, may convince the market and Fed hawks that the policy rate has been restrictive enough and that a rate cut should be initiated soon. This potential development may help to pull the DXY below the 105.0 mark and benefit the ringgit.