Technical Analyst Perspective: Forecasting the Ringgit’s Moves Against the U.S.
Dollar Amid Optimal Inflation Level at 2% and Flat Interest Rates at 3%
by Ahmad Fauzan Bin Amrullah,
Certified Financial Technician (MSTA-UK)
Last Price: $1 = RM4.674
(as of Friday, 8 September 2023)
The Tale of Two Wizards:
Market Technician vs Market Fundamentalist
Ever scratched your head about how financial
experts predict whether the Ringgit will rise or fall
against other currencies, particularly the U.S.
Dollar? And why should you care? Whether you're
planning a trip abroad or simply wondering why the
prices of goods keep changing, this stuff matters.
These predictions often rest on two pillars:
'Technical Analysis' and 'Fundamental Analysis'.
Before glancing at key financial buzzwords like
'inflation' and 'interest rates,' let's begin with the
ABCs of market forecasting, the three easy-to-use
technical tools that may help to predict where
currency markets might go next: 'support',
'resistance', and 'trend lines'.
1. Support: Picture this as a 'trampoline' where the
price bounces back up.
2. Resistance: Think of it as the 'ceiling' where
prices often start to descend.
3. Trend Lines: Like hiking trails on a chart, they
show if the price is going up or going down.
RESISTANCE
SUPPORT UPTREND LINE
There are two major tribes in the world of financial
forecasting: the 'Technicians' or 'Chart Whisperers'
who are enchanted by lines, and indicators on
charts and they use the tools we just talked about.
And the 'Fundamentalists' or 'Number Crunchers'
who act like detectives, piecing clues together from
economic statistics including inflation data and
interest rates. And in between, you’ll find the
Hybrids, a savvy group that blends the art of
technical analysis with the science of reading
economic indicators for a more panoramic view of
the financial crystal ball.
Let's have a quick peek into the Fundamentalist's
lens. 'Optimal inflation' is like your mom's porridge,
neither too hot nor too cold, just right. A 2%
inflation rate hints at a healthy economy that's
neither skyrocketing nor slumping. And interest
rates? We can picture them as a thermostat that
controls the economy's "temperature." Malaysia's
central bank has chosen to keep interest rates
steady at 3%, signalling stability and predictability.
From Theory to Reality: Technical Analysis &
Forecasts on Ringgit vs U.S. Dollar
Ready for the magic of technical analysis? We've
got three charts to dig into, each showcasing the
Ringgit's dance with the U.S. Dollar in USD/MYR
format for simplicity. Chart 1 opens the act with a
10-year monthly view, Chart 2 hones in with a 5-
year weekly spotlight, and Chart 3 wraps it up with
a 1-year daily nitty-gritty. These charts are like our
treasure hunt guide offering clues to where the
Ringgit may be headed next. Think of them as the
macro, intermediate, and micro views in our
unfolding Ringgit-Dollar saga.
Long-term Outlook: The Grand Journey
In the long run, the USD/MYR looks promising, or
as the experts say, ‘bullish’. Fun fact: ‘Bullish’
means people expect the price to go up. Last
November, the Ringgit dipped from RM4.750 to
RM4.250. Well, it has nearly made a full comeback.
A pattern, called an uptrend channel has been
established, it hints that the U.S. Dollar will keep
climbing, aiming for around RM4.800 per USD.
Upside of
Channel
Chart 1, USD/MYR | Monthly line chart (2014-Present) | Source: Tradingeconomics.com
Medium-term Outlook: The Seasonal Rhythms
In the medium term, the USD/MYR is also on the
upswing. A steeper ‘tentative’ uptrend line rising
on the weekly chart shows that the speed of the
price increase is picking up. Fun fact: For the trend
line to be reliable, it must touch at least three
points on the chart. The market started a solid
upward move in early August this year from
RM4.510 and we are aiming for a medium-term
goal in the RM4.730-4.750 range per USD, where
the weekly resistance level is at.
Weekly
Resistance
sistance
Upside Re
Monthly
Weekly
Uptrend Line
(Tentative)
Uptrend
Line
Monthly
Chart 2, USD/MYR | Weekly line chart (2019-Present) | Source: Tradingeconomics.com
Short-term Outlook: The Daily Hustle
In short term, the USD/MYR market is at a turning
point, known as a ‘daily resistance level’. Think of
this like a low ceiling, it's tough for the price to
break through. If this ceiling holds, we predict the
price will drop to either two of the immediate
support levels: one at RM4.550 and another around
RM4.510-4.520. Fun fact: When a ceiling turns into
a floor, or vice versa, that's called a ‘role reversal’.
But if the U.S. Dollar breaks above this ceiling, we
will be closer to hitting our weekly and then our
monthly targets.
Weekly Resistance
DOWNTREND LINE
Daily
Resistance
Daily
Resistance
Daily Becomes
Uptrend Line
Support
Weekly Uptrend
Line
Chart 3, USD/MYR | Daily line chart (2022-Present) | Source: Tradingeconomics.com
Given that the U.S. Dollar is looking strong, the
Malaysian Ringgit is having a tougher time. It's a bit
like a tug-of-war game; when one side pulls
stronger, the other side loses some ground. So, as
the U.S. Dollar climbs or getting a bit more
expensive, the Ringgit is facing some pressure and
might decline in value or become cheaper.
Now, what does this mean and how does it relate
to inflation and interest rates? If prices start going
up too quickly, a.k.a. inflation, one way to slow it
down is for banks to raise interest rates. This is
where it gets exciting: Higher interest rates could
actually help the Ringgit in two ways. First, it cools
down inflation, getting more bang for your buck.
Second, it could make the Ringgit more appealing
to investors, which could help strengthen it against
the U.S. Dollar. So, if you're concerned about the
Ringgit weakening, a sudden rise in interest rates
might just be the booster it needs to regain some
strength.
Alright, future financial forecasters, we've taken
quite the rollercoaster ride. Here is a quick recap
and some Sayonara thoughts:
1. Technicians vs Fundamentalists.
The financial wizards either love their charts or
economic data. And some do a bit of both!
2. DIY Technical Tools.
Use ‘support’, ‘resistance’, and ‘trend lines’ to read
any market, not just currencies.
3. USD/MYR Quick Take.
U.S. Dollar is looking strong, putting downward
pressure on the Malaysian Ringgit.
4. Inflation and Interest Rates.
At 2% inflation and 3% interest rate, Malaysia’s
economy is stable but watch out for shifts.
Keep in mind, this isn't a financial crystal ball, but
more of a map to a corner of the financial universe.
While I'm a certified market chartist, what we've
chatted about is purely educational and not
financial advice. Continue to keep an eye on the
Ringgit, and consider consulting a financial advisor
for personalized guidance. Catch you in the next
financial updates.
Monthly
Uptrend Line
(Tentative)