Ringgit Weekly Outlook - 22 September 2023

Downside bias amid strong USD safe-haven demand and lack of domestic boost

The Fed's recent hawkish pause, coupled with the ECB and BoE's dovish bias has helped the USD index (DXY) to maintain a foothold above the 105.0 level, weakening the ringgit. The deepening of negative yield differential between MY-US 10-year bond (above -50 bps) due to the Fed's higher-for-longer narrative has also pressured the MYR to trade close to the 4.70/USD threshold. Malaysia's weaker-than-expected trade figures and China's worsening

Even though the Fed continues to indicate the possibility of another 25 bps rate hike this year, the market remains sceptical (the CME FedWatch Tool expects the Fed to maintain rates at 5.50% until June 2024). Therefore, we reckon that, unless there is an upside surprise in US macro readings, the DXY may consolidate around the 105.0 – 105.5 level next week, which would keep the ringgit weak around the 4.65 - 4.70 level.