Ringgit Weekly Outlook - 4 August 2023

To teeter between gains and losses amid US and China's uncertainty

The ringgit strengthened near the 4.50/USD threshold on July 31, supported by the yuan's appreciation amid stronger PBoC’s daily fixing, and market expectations of weak US macroeconomic readings. However, these gains were short-lived as the local currency depreciated above the 4.55 level on August 3. This depreciation could be attributed to China's weak manufacturing PMI reading and the USD index (DXY) rising above the 102.0 level due to increased safe-haven demand following Fitch's downgrade of the US credit rating and better-than-expected private sector job data.

While we partly agree with Fitch's view on the US fiscal conditions due to its ballooning debt burden, we do not believe this downgrade will have any material long-term impact on the USD. Our stance on the projection of the DXY remains neutral-to-bearish, as we expect the Fed to have reached an end of its hiking cycle. Any downside surprise to the US non-farm payrolls reading tonight should solidify our expectations, leading to a stronger ringgit. However, without intervention and stimulus by the Chinese government, the yuan may continue to weaken due to its weak macro landscape, exerting pressure on the ringgit.