Downside bias on stronger US job report and inflation outcome
The ringgit appreciated by around 0.25% on a Thursday-toThursday basis against the USD due to the below-consensus ISM manufacturing index print and decreased activity in US markets amid the US Independence Day holiday. However, the ringgit's gains were capped by a surge in the 10-year US Treasury yield above the 4.0% level for the first time in more than four months, amid hawkish FOMC minutes and strong private-sector job growth.
The differential between MY-US 10-year government bond yields is likely to remain in negative territory, as BNM has adopted a more neutral stance, retaining the overnight policy rate at 3.0%, while the Fed has become more hawkish in its policy stance, supported by strong US labour data. This, coupled with the current market consensus of another 25 bps rate hike by the Fed in July, is likely to continue to exert downward pressure on the ringgit. However, the market is still expected to wait for the release of US non-farm payrolls tonight and US core inflation data next week before making any major moves. That being said, any above-consensus reading may prompt another round of adjustment, weakening the local note.
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