Ringgit awaits clarity on domestic uncertainties

USD/RM put in yet another range-bound performance for most of the week, supported by the 4.14
psychological level. However, the currency pair did breach its 50-day simple moving average on Friday
on news headlines about a potential declaration of a state of emergency in Malaysia.

On Wednesday, Malaysia’s September CPI saw a slightly larger contraction than markets had expected, although it didn’t discourage the Ringgit from following the regional trend mid-week.

Global market sentiment will continue to revolve around three main factors: the pandemic, US
presidential elections, and the next round of US fiscal stimulus. Should investors continue to stay true to
expectations that the next US fiscal stimulus package can be agreed to in the remaining days before the
elections, that could exert more downward pressure on the Greenback.

However, should risk aversion pick up steam leading up to 3 November, that might see the Greenback unwind its recent losses. Still, the futures contracts on the VIX, also known as Wall street’s fear gauge, has been pricing in relatively lower volatility in US stock markets through mid-November, which suggests that markets are expecting a decreasing likelihood of any elections-related surprises.

Major economic releases out of some of the world’s largest economies over the coming days, such as Q3
GDP figures for the US and EU, as well as China’s September industrial profits, may colour some of the
market decisions over the coming days.

However, these prints are unlikely to hold significant sway over broader sentiment in light of the earlier-mentioned event risks surrounding the global pandemic and the US political landscape. Malaysia’s September exports are forecasted to post a year-on-year gain of 3.8 percent, which would mark a return to expansion after the 2.91 percent on-year contraction in August.

For the week ahead, should domestic uncertainties dissipate, the Ringgit could strengthen past the 4.15 level against the US Dollar once more. Heightened risk aversion however could keep USD/RM above its 50-day moving average, with 4.1707 serving as the near-term resistance level.

Written by Han Tan, Market Analyst at FXTM