KUALA LUMPUR - The ringgit is likely to trade at the 4.3200-4.3450 level against the US dollar next week with a slightly negative bias as the ringgit is held hostage by external factors and predominantly a more hawkish rewrite of the Federal Reserve (Fed) narrative as the market starts pricing in more US rate hikes for 2023, said an analyst.
SPI Asset Management managing partner Stephen Innes said this is despite Malaysia posting the highest growth in decades. Unfortunately, the global outlook is dimming because of higher interest rates in developed markets.
"But whether the Fed has tightened financial conditions sufficiently to bring inflation down to target over time is going to be the most significant debate in the market agenda through the first half of 2023,” he told Bernama.
He said while most agree that overall economic growth will recover in China this year, there appears to be a lack of conviction on the magnitude of that rebound.
"Many local traders think this year's household consumption recovery could be slower than expected, given the scarring effects of property deleveraging and the legacy of three years of Covid-19 controls,” he said.
Innes said US-China relations remain a popular conversational topic and provide a safe-haven bid for the US dollar in Asia.
He said from a yuan perspective, investors are hedging bets against the US President Joe Biden administration's anti-China plays accelerating this year.
In comparison, Wall Street still holds a more optimistic view on consumption recovery in China, potentially based on western economies' experiences whereby household consumption boomed after reopening, he said.
"But we are at a fork in the road right now on whether China will follow a western reopening game plan or a more Asian-styled cautious reopening approach.
"Remember that the Chinese, unlike the Americans and those in the western countries, are fundamentally net savers, not net consumers,” he added.
He said investors also remained cautious ahead of next week's US Consumer Price Index (CPI).
Meanwhile, Kenanga Research said the local note is expected to remain pressured above the 4.30 threshold against the US dollar as the market awaits the release of US core inflation and retail sales data, in which a higher-than-expected reading may push the US Dollar Index (DXY) closer to the 104.0 level.
The ringgit ended the holiday-shortened week lower as the US non-farm payrolls data and the faltering China reopening risk rally continue to stymie Asian foreign exchange, as well as the ongoing hawkish pushback from Fed members on any hopes for an interest rate cut in 2023.
On a week-on-week basis, the ringgit fell against the US dollar to 4.3320/3350 at Friday’s close versus 4.2565/2610 a week earlier.
The local note ended mixed against a basket of major currencies compared to a week earlier.
It depreciated against the British pound at 5.2404/2440 from 5.2125/2180, and weakened against the Singapore dollar to 3.2635/2663 from 3.2475/2514.
However, the ringgit strengthened against the euro at 4.6391/6424 from 4.6519/6568 and rose against the Japanese yen to 3.3089/3114 from 3.3106/3147. - BERNAMA