Ringgit Weekly Outlook - 26 January 2024

Weakness to persist as markets favour defensive USD positions ahead of Fed meeting

Despite the risk rally led by China, sparked by discussions surrounding the USD278.0b rescue package and a 50 bps reduction in the Reserve Requirement Ratio, the ringgit has persistently weakened, surpassing the 4.73/USD level. This depreciation can be attributed to concerns about the global economic outlook and the market's recalibration of expectations regarding Fed easing cycle.

The robust 4Q23 US GDP performance has not significantly propelled the USD index (DXY), mainly as the market remains more responsive to adverse US data than positive surprises. This subdued reaction can also be attributed to US Treasury Chief Yellen's assertion that the solid growth is not inflationary. Anticipating the release of US Core PCE data tonight, which is expected to persistently moderate to 3.0% YoY (Nov: 3.2%), the DXY might continue to trade in a range near the 130.0 level. Looking ahead, the focus will shift to job numbers preceding the Fed meeting next week, as investors seek insights into potential motivations for a rate cut in March. Despite this scrutiny, there appears to be no compelling catalyst to expedite the rate cut cycle. As such, we maintain our view of the DXY staying strong in the short term, exerting pressure on the ringgit to trade around the 4.70/USD level.