Gulf headlines hold the key as USDMYR tests 4.00
Overview
- Performance: MYR weakened beyond 4.00/USD, pressured by stalled US-Iran talks, firmer US data, and renewed tariff concerns.
- Market Dynamics: Limited progress in US-Iran negotiations and renewed US tariff concerns lifted risk aversion. The ringgit weakened as investors increased USD exposure amid resilient US data and rising Fed hike expectations. Persistent Strait of Hormuz disruptions kept oil prices elevated, reinforcing inflation concerns and pushing US Treasury yields higher. FX positioning remained USD-supportive as markets unwound dovish Fed bets and held defensive EM allocations.
- Data Watch: Focus shifts to US non-farm payrolls and next week's inflation data to assess whether markets can sustain Fed rate expectations by year-end. Strong labour market and sticky inflation readings would reinforce USD strength and keep US yields elevated. Investors will also monitor US-Iran negotiations for signs that energy flows through the Strait of Hormuz can normalise. Domestic political developments in Johor are likely secondary unless they raise broader concerns about the political cycle.
- Outlook: Our baseline assumes US-Iran negotiations remain fragile and the Strait of Hormuz stays partially disrupted. This should keep oil prices elevated, tilt inflation risks higher, and preserve Fed tightening expectations. Investors are likely to stay cautious until there is credible and tangible progress on diplomacy or energy flows. We expect USDMYR to trade within 4.00-4.05, with risks skewed toward further ringgit weakness.
- Technical: USDMYR is approaching overbought territory, with immediate resistance at 4.04; support at 3.98.
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