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Malaysian Ringgit Upside Momentum Fading Amidst 3-Year CPI Low

Malaysian Ringgit Upside Momentum Fading Amidst 3-Year CPI Low

Daniel Dubrovsky, Strategist

Malaysian Ringgit Talking Points:

  • Malaysian Ringgit cautiously weaker after local CPI at 3-year low
  • The Bank of Malaysia anticipates negative headline inflation ahead
  • USD/MYR upside momentum is fading, warning that it may fall next

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The Malaysian Ringgit weakened slightly against the US Dollar after June’s local inflation report crossed the wires. Heading into the release, USD/MYR was already rising during Wednesday’s Asia trading session, reacting to earlier greenback strength when Fed Chair Jerome Powell’s hawkish comments bolstered the currency.

In June, Malaysian CPI clocked in at just 0.8 percent y/y versus 1.3 percent expected and 1.8% in May. This was the weakest pace of headline inflation since February 2015, or over three years ago. In fact, Malaysia has been experiencing some mild disinflation since CPI peaked at 5.1% back in March 2017. While this may inspire some Bank of Malaysia monetary easing bets, let us not forget how it was positioned for this data.

As mentioned in this week’s ASEAN outlook, the Bank of Malaysia (BNM) expects headline inflation to be lower down the road while core readings stay relatively stable. In fact, to quote their most recent monetary policy statement “headline inflation is likely to turn negative in some months and remain low in the first half of 2019”. With that in mind, we shall see what the central bank has to say about this data in the coming days.

Ahead, the sentiment-linked Ringgit will likely continue being influenced by the direction of the US Dollar and risk trends. Later today, we will get another appearance of Jerome Powell before a house panel. He may retirate recent hawkish language, adding fuel the USD’s momentum and thus potentially sending USD/MYR higher. In addition, keep a close eye out for developments on US/China trade tensions.

We just released our 3Q forecasts for currencies like the US Dollar in the DailyFX Trading Guides page

USD/MYR reaction to Malaysia CPI

Chart created in TradingView

USD/MYR Technical Analysis: Upside Momentum Waning

On a daily chart, USD/MYR remains confined in a well-defined up trend channel that goes back to mid-April. The pair has been making progress higher despite the presence of negative RSI divergence over the past two months. This indicates that upside momentum is slowly ebbing and could mean that a turn lower mght be in the cards.

From here, near-term resistance is the 23.6% Fibonacci extension at 4.0555. A break above that exposes the upper line of the channel as well as the highs set in early December 2017 between 4.0875 – 4.0925. On the other hand, near-term support appears to be the July 10th low at 4.0100. A descent through that exposes the 38.2% Fibonacci retracement at 3.9753.

USD/MYR Daily Chart after Malaysia CPI

Chart created in TradingView

USD/MYR and other ASEAN currency Trading Resources:

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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