Ringgit Weekly Outlook - 10 November 2023

Despite the Fed’s hawkish push, below consensus CPI readings may provide fodder for risk assets

As expected, the ringgit appreciated sharply against the USD on Monday amid a notable decline in the USD index (DXY) near the 105.0 level. The DXY weakness was mainly driven by signs of a faltering US labour market, underscored by a below consensus nonfarm payrolls reading. Tighter credit conditions and weaker demand for loans in the US signal that an economic downturn is imminent, supporting the view that the Fed is done raising rates. However, the MYR's gains were partially erased as hawkish Fed speakers pushed back against the dovish interpretation of the Fed's future move.

The DXY's ascent near the 106.0 level, driven by Fed Chair Powell’s hawkish comments and rising Treasury yields after a disappointing 30-year bonds auction, may exert pressure on the ringgit today. Powell remarked that the Fed "is not confident" that interest rates are sufficiently high to curb inflation. As such, next week US CPI data will be scrutinised to assess the Fed's progress in controlling inflation. Any below consensus reading is expected to diminish the Fed's hawkish narrative, benefitting the ringgit. Also, the unlikelihood of a US government shutdown by November 17, coupled with the potential for an upside surprise in Malaysia's 3Q23 GDP reading may also help to boost the local note.