Faces renewed pressures as Trump’s comeback fuels USD strength
Our forecast of a stronger USD Index (DXY) on election day proved accurate, pushing the ringgit above 4.40/USD. However, contrary to expectations, it did not drop below 4.35/USD post-election, as our anticipated Harris victory did not materialise. Trump’s comeback, alongside Republican control of the Senate and a lead in the House, drove the 10-year US Treasury (UST) yield up to 4.43% on election day amid rising inflation expectations. While the DXY lost some gains as results settled, strong USD support continues as markets lean less dovish on Fed rate cuts
With Republicans holding a 211 to 199 lead over Democrats in the House, a “Red Sweep” looks more likely, which could push the DXY back above 105.0 and weaken the ringgit to around 4.40-4.45/USD in the coming week. Trump’s potential freedom to advance his agenda with minimal resistance could lead investors to favour the USD, selling long-dated UST and buying US equities. Although many emerging market currencies, including the ringgit, have already been heavily sold, we expect further depreciation driven by these factors. However, a steep drop is unlikely, given Malaysia’s solid domestic macro outlook.
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