US dollar-ringgit may move closer to 4.00

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The ringgit pared its losses for the week against the US dollar, following the knee-jerk reaction to Tuesday’s state of emergency declaration.

The announcement sent US dollar-ringgit breaching the 4.07 mark on Tuesday, only to be rejected by its 50-day simple moving average (SMA) before settling below 4.04 by Friday. The South Korean Won still leads Asia’s decliners on a week-to-date and year-to-date basis.

For the week ahead, investors will be hoping for a peaceful handover at Joe Biden’s presidential inauguration on January 20, amid threats of protests across major US cities.

Although US stocks have been able to ignore such events, and even the alarming breach of the Capitol Building earlier this month, market sentiment has grown noticeably cagier about adding more exposure to risk, preferring to book profits instead in recent sessions.

As the US earnings season continues, the fundamental investor would be on the lookout for signs whether the earnings projections for major companies can offer further justification for the lofty valuations seen in many stocks.

The commentary out of corporate titans could also set the tone for US equities, with investors having been left craving for fresh catalysts of late.

Major central banks are set to return to the limelight once more, even though the ECB and the BOJ are unlikely to change their policy settings at their respective January meetings.

However, markets are poised to react to any potential clues about the eventual adjustments to monetary policy, as the Fed and the BOE have discovered in recent days.

Bank Negara Malaysia is expected to keep the benchmark policy rate at 1.75 per cent in the week ahead.

Still, even another 25 basis point cut isn’t likely to evoke a major response in the ringgit, given the accommodative stance evident among central bankers around the world.

Malaysia’s health and economic response to the ongoing MCO, along with the Dollar’s behaviour, are set to be key drivers in determining US dollar-ringgit’s performance moving forward.

For the week ahead, the 4.00 psychological level may beckon once more for the currency pair, while the 50-SMA could be called into action once more as the key resistance level in the event of another risk-off episode.

 

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