USD/IDR: Indonesian rupiah outlook darkens as DXY surges

The USD to Indonesian rupiah (USD/IDR) exchange rate has been in a strong bullish trend as emerging market currencies retreated. It has been hovering at 15,427, which is a few points below the year-to-date high of 15,463. This price is the highest it has been since January 11. 

Indonesian rupiah rally fizzles

The Indonesian rupiah has been one of the best-performing currencies in the past few months. Earlier this year, the currency jumped to a high of 14,840, the highest level since September last year. 

This growth happened as investors continued piling into Indonesian government bonds, which are seen as being relatively safe. In other words, the pair formed an exciting carry trade opportunity, where investors borrow from low-yielding countries to higher-yielding ones. Data compiled by Bloomberg shows that the rupiah had one of the best carry trades in 2022. 

Indonesia, like India, has become one of the top growth engines of Southeast Asian economies. It expanded by more than 5.2% in 2022 and there is potential for more growth. Many companies have moved from China to other Asian countries, including Indonesia. 

Indonesia has published mixed economic data this week as focus remains solidly on the Federal Reserve. On Thursday, data showed that the country’s retail sales declined by 0.6% in January after expanding by 0.7% in the previous month. This is a sign that consumer spending is easing. 

Meanwhile, consumer confidence declined slightly to 122.4 in February while the country’s forex reserves jumped to $140 billion.

The main catalyst for the USD/IDR price is the Federal Reserve. In a statement, Jerome Powell shocked the market when he cautioned that the bank would hike interest rates by 0.50% in its March meeting. This view will be supported by the upcoming economic numbers on jobs and inflation.

USD/IDR price forecast

USD/IDR chart by TradingView

After rising sharply earlier this year, the Indonesian rupiah has eased in the past few days. The USD to IDR exchange rate has jumped from a low of 14,840 in February to a high of 15,461, the highest point on January 12. It has crossed the 50-period moving average while the Relative Strength Index (RSI) has moved close to the overbought level.

From a distance, the pair seems to be forming a double-top pattern. This means that it will likely continue soaring as investors target the year-to-date high of 15,747. The stop-loss of this trade will be at 15,250.