Ringgit Weekly Outlook - 5 January 2024

May recoup some losses amid a potential increase in Fed’s dovish bets

All ASEAN-5 currencies concluded the first week (end-Thursday) of the year in the red against the USD. The ringgit retraced above the 4.60/USD level as the market unwound some of its dovish Fed positions due to the lack of risk-on catalysts. Also, the USD found support from seasonal factors, driven by the reversion of December tax flows by US corporations and mixed signals in the FOMC minutes. However, the persistently weak US ISM manufacturing PMI, combined with lower-than-expected US job openings and robust China factory activity, has help to limit the ringgit's depreciation.

The disparity in US labour data, evident by the rise in private payrolls and easing job openings, may reinforce the Fed's argument for maintaining higher interest rates for longer, bolstering the USD. However, market expectations of a decline in tonight's US nonfarm payrolls data (consensus: 175.0k; Nov: 199.0k), along with a potential cooling of US core inflation (consensus: 0.2% MoM; Nov: 0.3%) next week, could foster a more dovish market sentiment, favouring risk-on currencies. The market may also focus on China CPI reading to assess consumer demand and speculate about potential economic stimulus. Domestically, improvements in IPI and retail sales readings may contribute to supporting the local note.