Ringgit Weekly Outlook - 28 July 2023

To extend neutral trend and US labour market report to influence price action

After weakening to around the 4.55 - 4.57 level against the USD, the ringgit surprisingly rebounded and strengthened to near the 4.52 level following a 25 bps rate hike by the Fed. The market interpreted Fed Powell's decision not to confirm another rate hike this year during the post-FOMC press conference as a dovish shift, pressuring the USD index (DXY) and boosting the ringgit. Additionally, the local note has benefitted from the strengthening of the yuan due to the state bank's intervention measures and optimism over the government's stimulus pledge.

The better-than-expected US 2Q23 GDP reading of 2.4% QoQ (Consensus: 1.8%) and Lagarde's dovish tone post-ECB 25 bps hike may help to keep the DXY supported above the 101.5 level, thereby putting pressure on the ringgit. Nevertheless, the market will continue to monitor key macro indicators, such as the US Core PCE reading, and if it comes in lower than expected (Consensus: 0.2% MoM), it could provide some support to the ringgit. Looking ahead to next week, the local note stands to benefit if there are signs of cracks emerging from the US labour market, indicating that recession risks continue to linger on despite the solid GDP reading.