Ringgit Weekly Outlook - 12 January 2024

To remain weak on USD preserved safe-haven status, but downside limited

Despite the above-consensus US nonfarm payrolls reading, which stood at 216.0k (Nov: 173.0k), the USD index (DXY) shows minimal movement. This can be attributed primarily to conflicting signals from the job market, highlighted by a contraction in the ISM services employment component. However, due to the absence of factors supporting its strength and ongoing external uncertainties, the local note depreciated, surpassing the 4.64 level against the USD.

The DXY once again failed to strengthen despite upside surprises in US CPI readings, which turned out to be hotter-than-expected. Despite the initial knee-jerk reaction that propelled the DXY to around 102.7, supported by a surge in the 10-year US Treasury yield, the market ultimately concluded that the CPI reading does not significantly alter the trajectory of Fed policy. Nevertheless, this development diminishes the likelihood of an early Fed rate cut, and the market may soon gradually unwind its bets on a March rate cut (CME FedWatch tool: > 70.0% probability). Next week, investors may closely monitor China's 4Q23 data for any signs of economic recovery. A pro-yuan story, coupled with a weaker US retail sales reading, may help the ringgit to recoup some of its losses. Meanwhile, focus will shift to tomorrow’s Taiwan election, adding a new geopolitical dimension to the economic context.