Since the beginning of the Covid-19 pandemic, the US dollar has been losing value against almost all its counterparts. This also reflected on the USDMYR, which has come from 4.4480 in March 2020 (the highest price in 4 years) to 3.9975 in January 2021 (more than 10%).
This year the USDMYR made an up move to recover from its loss and reached the level of 4.1570, a natural retracement in a bear market. This down trend in the US Dollar seems to be fuelled by the Quantitative Easing Policy adopted by the FED to fight the economic effects of the pandemic. The side effect of this policy is that the US inflation is already scaring the markets all over the world.
Investors who have taken part on this macroeconomic idea, could have sold the USDMYR to profit from the down move. Even though the movement to the down side is already in place and the trend is obvious, there might still have room for more down movement, once the FED still has its forward guidance, signaling that it has no intention to make any change the interest rate for the Dollar until 2023.
By this moment, the down trend looks solid, with very little contradiction and plenty of room for the Malaysian Ringgit to gain even more value against the US Dollar.
From a technical point of view, the USDMYR could reach the 4.1000 level in the next week. A break below the 4.1000 area, could bring the price all the way down to 4.07 as a first target and 4.00 as the second one.
If the price manages to break below the 4.0000, it could go to 3.8584, the lowest price since 2015. Such trade could take 6 to 12 months to play out as the price slowly resumes the down trend.
Short term traders should keep an eye on the Malaysian Consumer Price Index (CPI) due later today and pay attention to the US Services PMI for April as those News could bring some extra volatility to the Market on this Friday.
As long as the US continues stimulating its economy by printing more dollars and doesn’t signal a change in the QE policy, this scenario is unlikely to change.
Questions and answers to help with trading this pair (more personalized opinion).
- How do you see the performance of MYR against USD this week?
The USDMYR resumed the downtrend that is in place since last year. By moment I have no reasons to believe that this downtrend is in danger. All the signals keep pointing to a devaluation of the dollar against the Malaysian Ringgit. From a macroeconomic stance, the Federal Reserve is not concerned about inflation at all so this could be the direction for a while.
- Outlook for USD/MYR for next week and factors influencing the movement of ringgit?
The US economy has been showing good numbers of recovery. Also there is the fact that vaccination rollout is at top speed, so the US economy is about to the full reopening. But more important than that is the fact that millions of Americans received a fat chunk of money with no strings attached, to spend as they wished. This is absolutely inflationary and it is driving the Market now. In my opinion, that’s what is making the Ringgit to gain value against the Dollar.
- At what level do you see the ringgit to reach 4.10-level against the US dollar next week?
In my opinion, if everything remains as it is now, its just a matter of time. In the pace that the Market is moving now, the USDMYR could reach the 4.10 level next week. Traders should remember that the 4.10 is a powerful round number and it could make the USDMYR retrace to the up side temporarily. A break from this level (4.10) would confirm the existing down trend and from this point on, we could see a gain in momentum to the down side.
