Analysts: Ringgit may grow further if US inflation data falls below expectations
The ringgit may see further gains against the US dollar if US inflation data falls below consensus expectations says analysts at Kenanga Investment Bank Bhd’s research arm (Kenanga Research).
In an economic viewpoint on May 10, the research arm guided that a softer US job report last Friday had prompted many analysts to expect the ringgit to appreciate against the US dollar this week.
While the ringgit did appreciate during the week, trading near the 4.74 level, it was lower than consensus expectations.
The slight variance was largely caused by the US dollar benefitting from a lower volatility environment and US-Europe monetary policy divergence which helped the US Dollar Index (DXY) rebound quickly after falling below the 105.0 mark at the beginning of the week.
“Despite the lack of pro-US dollar catalysts, the Riksbank’s rate cut and the Bank of England’s dovish leaning boosted demand for the safehaven, high-yielding greenback,” said the research arm.
That said, domestically, the Malaysian central bank’s (BNM) decision to maintain the overnight policy rate at 3 per cent and solid retail sales reading also helped to prop up the ringgit during the month.
Looking ahead, emerging evidence of US labour market softness from rising US weekly jobless claims has prompted the US Federal Reserve (Fed) to recalibrate their rate expectations and now two rate cuts are expected to occur in 2024.
“This coupled with stable domestic unemployment rate and expected solid IPI readings today, may support the ringgit to trade around the 4.73 level,” the research arm mused
Kenanga Research added that more focus will be placed on key US macro data next week and any below consensus expectations, especially regarding inflation, may convince the market that the US policy rate has been restrictive enough and that a rate cut may be initiated soon.
“This potential development may help to pull the DXY below the 105.0 mark and benefit the ringgit,” they opined.
Currently, Kenanga Research reckoned that the outlook for the US dollar-ringgit remains neutral-to-bullish with the pair expected to trade near its fiveday EMA of 4.741.