USD/IDR forecast as Indonesian manufacturing sector gains steam

The USD/IDR exchange rate drifted downwards on Monday as data pointed to a strong Indonesian economic recovery. It dropped to a low of 14,984, the lowest level since February 6 of this year. It has crashed by 4.85% from its highest level in November, making the Indonesian rupiah one of the top-performing currencies. 

Indonesia manufacturing and IPO market 

The USD to IDR exchange rate dropped even as the US dollar index (DXY) jumped sharply on Monday morning. The main catalyst for this performance was the latest Indonesian manufacturing PMI figure. 

According to Nikkei, the manufacturing PMI figure rose to 51.9 in March from the previous month’s increase of 51.2. This PMI figure has remained in an expansion zone since 2021.

Indonesia has continued seeing more uptick of manufacturing activity in the past few months. A likely reason is that many Chinese manufacturing companies are moving their plants there as tensions with the United States continues. Also, Indonesia has highly-skilled youth whose wages tend to be a bit lower than those in China. 

In all, analysts believe that the Indonesian economy will be one of the top performers in 2023. According to the central bank, the economy will expand by between 4.5% and 5.3% in 2023, making it one of the top performers among the G20 member states. 

This growth will be boosted by industries like commodities, infrastructure, tourism, and manufacturing. Indonesia is a major producer of key commodities, especially nickel, which is needed in large volumes as the world moves to electric vehicles. 

The USD/IDR also dropped as the IPO market continues doing well. Data by Bloomberg shows that the country attracted IPOs worth over $1.45 billion in the first quarter of the year. That was nearly twice what was raised in Hong Kong. It was also bigger than the funds raised in key markets like London and Tokyo. 

And more IPOs are scheduled to happen in Q2 as the government offloads some of its stakes. Some of the upcoming IPOs in Indonesia are Pertamina Hulu Energi and Palm  Co. 

USD/IDR technical analysis 

USD/IDR chart by TradingView

In my last article on the Indonesian rupiah, I wrote that the USD/IDR would likely retest its 2022 high of 15,752. This prediction did not happen as the pair quickly dropped to 14,989.

On the daily chart, the pair has moved below the 50-period moving average while the Relative Strength Index (RSI) has moved below the oversold level at 30. The pair is also below the Ichimoku cloud. 

Therefore, I suspect that the USD to IDR exchange rate will continue falling as sellers target the next support level at 14,840, the lowest point on February 3.