Ringgit Weekly Outlook - 20 October 2023

May face choppy waters amid the absence of pro-ringgit catalysts and rising USD strength

The ringgit experienced a sharp depreciation of -1.2% against the USD on a Thursday-to-Thursday basis, making it one of the worst performing currencies of the week. This decline is primarily due to the significant ascent of the US Treasury (UST) yields, driven by fears of a hawkish Fed and rising tensions in the Middle East. Notably, the MY-US 10-year government bond yield spread has continued to widen negatively, surpassing -80.0 bps, its largest negative gap since October 2007 (early phase of GFC). The relatively stable yuan, supported by China's better-than-expected GDP performance has not provided the much-needed relief to the ringgit.

Fed Chair Powell's recent quasi-hawkish remarks have not pushed back against market expectations that the Fed Fund rates have already peaked. However, the market continues to maintain longUSD positions due to the rising demand for safe-haven greenback amid growing tensions in the Middle East and soaring UST yields, driven by the strength of the US economy and increasing US debt sales. As a result, the ringgit may continue to suffer losses and breach the 4.80/USD threshold. The MYR is expected to be primarily influenced by the USD due to the absence of domestic catalysts in the coming week. Any upside surprise in the US 3Q23 GDP reading may further drive UST yields higher, causing distress for the ringgit.