How will global central bank policies affect the Malaysian ringgit?

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Global Central Bank Policies and Their Impact on the Malaysian Ringgit

The Malaysian ringgit is anticipated to face downward pressure against the US dollar in the near term, influenced by the hawkish stance adopted by global central banks, particularly the US Federal Reserve (Fed) and the European Central Bank (ECB). This policy direction contrasts with earlier expectations of an early pause in interest rate hikes, which had previously bolstered sentiment for the ringgit. The prevailing uncertainty surrounding China's economic reopening, exacerbated by a surge in Covid-19 cases, further adds to the headwinds for the local currency.
Hawkish Monetary Stance Creates Downside Risk

The recent pronouncements from the Fed and ECB have signalled a continued commitment to tighter monetary policy, a move that typically increases the attractiveness of the US dollar relative to other currencies. This hawkish pivot dampens the optimism that had previously supported the ringgit, as market participants reconsider the timing and extent of potential interest rate pauses in 2023. For instance, Fed Chairman Jerome Powell's remarks, even after a downshift to a 50-basis point rate hike, were interpreted as relatively hawkish, contributing to the ringgit's depreciation against the greenback in the week prior.
External Factors Weighing on Ringgit Sentiment

Beyond central bank actions, external economic developments are also playing a significant role. Weaker-than-expected retail sales data from the United States could exert pressure on the US Dollar Index, potentially below the 105.0 level. However, this is counterbalanced by the hawkish pivot from the ECB, which can independently strengthen the dollar. Concurrently, the ongoing uncertainty surrounding China's Covid-19 situation and its impact on economic activity poses a risk to global markets, including Malaysia, given the strong trade ties between the two nations.
Domestic Strength and Macroeconomic Data as Potential Support

Despite the prevailing global headwinds, certain domestic factors could offer some support to the Malaysian ringgit. Stronger trade readings, if reported, would likely bolster the local currency. Furthermore, a continued trend of decelerating economic momentum in the US, as indicated by forthcoming macroeconomic data, could lead to a partial recovery of the ringgit's losses. However, the overall elevated level of global uncertainties suggests that the ringgit may continue to trade above the 4.40 level against the US dollar.
Neutral Technical Outlook Amidst Uncertainty

From a technical perspective, the outlook for the ringgit-US dollar pair remains neutral. The pair is expected to fluctuate around its five-day exponential moving average of 4.412. The relative strength index (RSI) for the pair is positioned in the middle of its range, indicating neither an oversold nor overbought condition. This neutral technical bias, coupled with the broader economic uncertainties, suggests a trading range between 4.396 and 4.432 for the upcoming week, with the currency having depreciated to 4.4220/4265 against the US dollar by Friday of the past week.

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How will global central bank policies affect the Malaysian ringgit?

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