The Indonesian rupiah continued its downward trend, falling to its lowest level since August 7, ahead of the central bank decision. The USD/IDR exchange rate was trading at 16,095, up by 6.83% from its lowest point this year.
Indonesia’s central bank decision
The USD to IDR exchange rate continued its strong rally ahead of the Bank of Indonesia interest rate decision. This will be a crucial meeting since it will be the last one of the year, and it will set the tone for what to expect in 2025.
The Bank of Indonesia delivered a surprise interest rate cut in September when it slashed them by 0.25% to 6.0%. It has maintained rates unchanged in the last three meetings, and analysts expect it to do the same on Wednesday.
This decision comes at a time when the Indonesian economy is showing signs of slowing down. The most recent data showed that the economy expanded by 4.95% in the third quarter, slightly lower than what analysts were expecting. It grew by 1.5% on a QoQ basis, also lower than the expected 1.59%.
This slowdown was mostly because of the household sector, which makes up about half of the GDP. Household spending rose by 4.91%, while corporate investments grew by 5.15%.
The government is working to boost this spending. It has implemented some tax breaks for property sales, to support personal spending.
On the positive side, Indonesia’s inflation rate has continued doing well in the past few months. The most recent data showed that the headline Consumer Price Index (CPI) slowed to 1.58% in November, its lowest level since 2021. It has dropped from almost 6% in 2022.
Federal Reserve interest rate decision
The USD/IDR exchange rate has also surged ahead of the upcoming Federal Reserve interest rate decision. Unlike the Bank of Indonesia, analysts expect the Fed to slash interest rates as it works to salvage the deteriorating labor market.
Data released earlier this month showed that the unemployment rate rose from 4.1% in October to 4.2% in November. The participation also dropped even as the economy added over 200k jobs during the month.
The Fed, however, will likely have a hawkish tilt because of the stubbornly high inflation and the fact that some of Trump’s policies are highly inflationary. Data showed that the headline Consumer Price Index (CPI) rose to 2.7% in November, while the core CPI remained at 3.3%.
The USD/IDR has also jumped in sync with the ongoing weakness in the emerging market currencies following Donald Trump’s election. Trump has threatened major tariffs on most imports, a move that may slow the global economy.
USD/IDR technical analysis
USD/IDR chart by TradingView
The daily chart shows that the USD to IDR exchange rate has been in a strong uptrend in the past few months. It has risen to 16,100, its highest level since August 7. The pair recently formed a golden cross pattern as the 200-day and 50-day Exponential Moving Averages (EMA) crossed each other.
The pair recently crossed the key resistance at 15,970, its highest swing on December 4. It is also nearing the 78.6% Fibonacci Retracement level. Therefore, the pair will likely continue rising as bulls target the next key resistance point at 16,200.
The alternative scenario is where the pair drops and retests the support at 15,970 and then resumes the uptrend. This situation is known as a break and retest and is one of the most popular continuation signs.
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