Ringgit Weekly Outlook - 14 July 2023

To benefit from USD’s correction, but upside remains limited amid China’s uncertainty

The ringgit traded weak around the 4.65-4.67 zone from Monday to Wednesday as the MY-US 10-year government bond yield differential continued to be in negative territory amid hawkish Fed expectations. The local note was also pressured by a relatively weak yuan as demand remained weak in China, as evidenced by its CPI reading of 0.0% YoY. However, the downside surprise in US core CPI reading (0.2% MoM; May: 0.4%) has dragged the USD index (DXY) below the 100.0 level for the first time in 15 months, subsequently strengthening the ringgit below the 4.60 threshold.

The ringgit is expected to trade in the range of 4.51 - 4.55 with a marginal upside bias against the USD, as the DXY is expected to remain on a downtrend and approach the 99.0 level, especially if US retail sales data turn out to be lower-than-expected (consensus: 0.5% MoM; May: 0.3%). The market may also continue to monitor China's macro conditions (i.e. GDP and unemployment rate) and People Bank of China's policy direction next week. Any pro-yuan catalysts could help to boost the ringgit to trade closer to its psychological threshold of 4.50/USD.