KUALA LUMPUR (July 13): RHB Banking Group believes that the recent drop in the US dollar/Malaysian ringgit (USD/MYR) currency pairing is temporary, and has set a short-term target at 4.65 and a maintained forecast of 4.65-4.75 for end-3Q2023, followed by 4.70-4.80 by end-2023.
In a note on Thursday (July 13), RHB Banking Group chief economist & head of market research Sailesh K Jha said the overnight drop in US Treasury (UST) yields, caused by lower-than-expected US June core CPI, is an anomaly.
He expects inflation to remain sticky in the US during the second half of 2023 (2H2023), which will drive the USD/MYR higher.
“From a carry perspective, the momentum is likely to re-accelerate in terms of US’ versus Malaysia’s rates. This will drive USD/MYR higher,” he said, as RHB maintained its forecast of a 2H2023 average UST10YR yield of 3.90%-4.40%.
In addition, RHB predicted that the USD/CNH (US dollar/Chinese yuan) will decrease to 7.1909 in the near term due to weak economic data and the negative carry of holding CNH versus USD.
Since the USD/MYR and USD/CNH are positively correlated, their end-3Q2023 USD/CNH forecast remains at 7.25-7.25, followed by 7.30-7.40 at the end of 2023.
While RHB acknowledges the possibility of increased capital inflows to the domestic equity market during state-level elections in August, it doubts that these flows will outweigh the negative carry of holding MYR versus USD, and the correlation with USD/CNH, which will impact the trajectory of USD/MYR in 3Q2023.