Forex watch: BNM decision in focus

US dollar- ringgit drifted towards the 4.30 psychologically-important level, though not straying far from its 100-day simple moving average. The ringgit has taken the downgrade to Malaysia’s sovereign credit rating outlook in stride thus far, advancing about 0.1 per cent against the dollar, while Asian currencies endured mixed fortunes for the week.

The Indian rupee was the best performer with a 1.1 per cent advance for the week while the Indonesian rupiah led decliners with a drop exceeding two per cent.

Malaysia’s larger-than-expected declines for May’s export and imports resulted in a RM10.4 billion trade balance surplus, which was twice the amount markets forecasted. The June Markit manufacturing PMI’s return to expansion, while also registering its highest reading since September 2018, is a heartening sign of Malaysia’s economic recovery, with such prospects bolstered by the stimulus measures in place.

Markets are rather divided on their expectations for Bank Negara Malaysia’s policy decision on July 7, with forecasts ranging from the

OPR being left unchanged, to a cut as deep as 50 basis points. The uncertainty could lead to some volatility in the ringgit as markets adjust their monetary policy outlooks in the wake of BNM’s official decision. Malaysia’s May industrial production print is unlikely to have a major say on the ringgit’s performance when the data is released on July 10.

For the week ahead, global risk sentiment is set to mark time as it has in recent weeks, unless jolted by a major catalyst. Investors are still searching for greater clarity, as concerns over a resurgence in coronavirus cases in major economies countries are dulling the green shoots of the global recovery.

US dollar- ringgit could be met with stronger resistance, especially if its gradual climb since June results in a convergence between its 50-day and 100-day simple moving averages. Such a technical event could force the currency pair to adhere to the downward trend that’s been evident since March. If so, the ringgit’s presence on the weaker side of 4.30 could be short-lived. To the downside, US dollarringgit could see stronger support at the 4.25 level. The ringgit’s performance is set to remain largely subjected to global risk appetite as well as the US dollar’s performance.