Tariff Positives Could Draw Foreign Inflow, Push MYR To 4.20 Levels
The DXY initially came under pressure after the US Senate passed a fiscal bill projected to add USD3.3 trillion to US debt over the next decade, intensifying concerns over US fiscal sustainability. This prompted investors to rotate into alternative liquid currencies like the Euro (EUR) and Swiss Franc (CHF), despite their lower yields. However, the DXY later rebounded above 97.0, buoyed by stronger-than-expected JOLTs (Job Openings and Labor Turnover Survey) and manufacturing data from the United States.
The robust US June jobs report significantly outperformed expectations, pushing the 10-year US Treasury yield up to 4.35%. This led markets to scale back their expectations for US rate cuts in 2025 from three to two. Attention is now shifting from broad macroeconomic data to upcoming US Treasury auctions and global trade negotiations. Domestically, Bank Negara Malaysia's (BNM) policy decision next week will be a key focus, with market views currently divided on the central bank's next move.
Kenanga Research maintains its expectation for BNM to hold the Overnight Policy Rate (OPR) at 3.00%, citing solid domestic growth and a risk that inflation may reaccelerate towards 2.0%. This house view stands in contrast to market expectations of a rate cut, suggesting that yields may rebound slightly above 3.50%. However, demand for Malaysian bonds is anticipated to remain resilient, especially if macro indicators continue to improve.
On the trade front, comments from Treasury Secretary Bessent, noting that around 100 countries could face a minimum reciprocal tariff of 10.0%, could be net positive for Malaysia (likely included in this group). Such developments, paired with ongoing structural reforms, could draw in more foreign inflows and support further Ringgit appreciation towards 4.20/USD.
Technically, the USDMYR remains anchored around its 5-day Exponential Moving Average (EMA) at 4.23. Future tariff developments are expected to drive its direction, with immediate support identified at 4.21 (S1) and resistance at 4.24 (R1). While these factors may provide additional support for the Ringgit, persistent external risks still warrant caution. Related
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