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Strong Demand For Dollar Bolstered DXY, Ringgit Remains Weak, Says Kenanga

KUALA LUMPUR: The strong demand for the greenback due to uncertainty about the Fed’s outlook has bolstered the US Dollar Index (DXY) within a 103.4 to 104.0 range, keeping the ringgit weak above RM4.70 per dollar.

US Federal Reserve chairman Jerome Powell indicated expectations to reduce interest rates by 0.75 percentage points this year, which propelled US equity markets to reach all-time highs.

Kenanga Investment Bank Bhd said that following the Federal Open Committee Meeting (FOMC) meeting, the ringgit recovered some losses, which was helped by Fed chairman Powell’s remarks interpreted as dovish.

The research firm said despite the pivotal decision by the Bank of Japan (BoJ) to end its negative interest rate policy and stronger-than-expected China’s industrial production index (IPI) and retail sales data, the ringgit surprisingly did not strengthen.

“Also, disappointing domestic export growth has further weighed on the currency,” Kenanga said in a report.

Meanwhile, the unexpected 25 bps rate cut by the Swiss National Bank on Thursday has significantly weakened the Swiss franc (CHF).

“This, combined with the Bank of England’s dovish shift and robust US manufacturing purchasing managers’ index (PMI) data, has propelled the DXY higher, weakening the ringgit,” Kenanga said.

The research firm said next week’s lack of catalysts may tether the ringgit’s movement against the dollar.

However, anticipated fund inflows into emerging markets, particularly in Malaysia, due to speculation of a Fed pivot in June and the nation’s relative stability might aid the ringgit’s recovery.

Additionally, continuous government and Bank Negara Malaysia (BNM) efforts to boost the ringgit’s value through short- and long-term policy reforms could support its stability.

Kenanga said the market attention will be on the US core personal consumption expenditures (PCE) data next Friday.

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