May continue to be drag by yuan's weaker coattails, but technical correction likely
The lack of pro-ringgit catalysts, coupled with China’s weaker-thanexpected macro readings, a surprise 15 basis points (bps) rate cut by the PBoC, and the Fed's openness to more tightening as reflected in its July FOMC minutes, have significantly weakened the ringgit. The local note depreciated by more than 1.8% on a Thursday-to-Thursday basis, the worst among its ASEAN-5 peers as the market is also expecting a slowdown in Malaysia's 2Q23 economic growth. However, the status quo outcome from the recent state elections has bought the incumbent government time to realise their Madani Economy framework, benefitting the ringgit.
Growing pessimism over China’s recovery, stemming from its economic distress and lack of stimulus support, may continue to weaken the yuan, subsequently pressuring the ringgit. However, the PBoC's stronger-than-expected fixing and continued intervention by the state-owned banks may limit yuan's depreciation. Additionally, the absence of USD impetus ahead of the Jackson Hole Symposium may cap the USD index topside around the 103.5 level, which should benefit the ringgit. Domestically, a better-than-expected 2Q23 GDP reading may provide support to the ringgit.
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