Ringgit Weekly Outlook - 8 December 2023

Possible bullish shift if US non-farm payrolls and inflation indicates dovish Fed

Despite a surprising decline in US job openings and a softer ADP private payrolls report, the ringgit failed to strengthen against the USD. The persistent decrease in the 10-year US Treasury yield, driven by the increasing market expectation of a Fed pivot, coupled with China's better-than-expected exports, has not succeeded in bolstering the local note. This might be attributed to investors adopting a cautious "wait-and-see" stance ahead of today's nonfarm payrolls release. The lack of confidence in the Fed's future monetary policy direction and Moody's downgrade of China's credit outlook have kept the ringgit weak above the 4.65/USD level.

A softening labour demand, as indicated by the Fed's Beige Book survey and JOLTS report, could be a signal of a potentially lowerthan-anticipated non-farm payroll reading tonight. This, coupled with a further deceleration in US CPI readings may solidify market expectation of a potential shift in Fed's language in its December FOMC meeting next week. Any dovish signals from the meeting are expected to considerably bolster the ringgit. Investors will also closely examine the US retail sales report for signs of waning consumer demand and China's retail sales numbers to gauge the momentum of the country’s economic growth. Domestically, improvements in industrial production and retail sales readings may further contribute to a ringgit appreciation.