USD/IDR forecast: what’s next for the Indonesian rupiah?

By:
on Apr 25, 2023
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  • USD/IDR has been in a strong bearish trend in the past few months.
  • The Indonesian central bank decided to leave rates unchanged last week.
  • Analysts expect that the bank will slash rates in Q4 of 2023.

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The USD/IDR exchange rate has moved sideways in the past few days as the US dollar index (DXY) resumes its slide. It was trading at 14,840 on Tuesday, where it has been in the past few days. This price is ~5.85% below the highest point this year.

Indonesia’s rupiah strength continues

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The Indonesian rupiah has been one of the best-performing emerging market currencies this year. This performance is mostly because of the strong economic growth in the country. In 2022, Indonesia’s economy expanded by 5.31% in 2022 after the country removed its Covid-19 restrictions.

The country is also benefiting from the ongoing exit of many countries from China as tensions with the US rise. Therefore, recent estimates by ADP show that the country’s economy will expand by 4.8% this year followed by 5.0% in 2024.

The USD/IDR exchange rate has moved sideways after the Bank of Indonesia delivered its interest rate decision last week. In it, the bank decided to leave rates intact for the third straight month because of falling inflation and stronger rupiah. Inflation has retreated to the lowest level in seven months and is expected to move to the target range of 2% and 4% in August.

The central bank decided to leave interest rates unchanged at 5.75%, where they have been since January. Like other central banks, it hiked interest rates by 225 basis points in 2022. Therefore, with the economy showing signs of moderation, analysts believe that the central bank will cut interest rates in the fourth quarter. 

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The next key catalyst for the USD/IDR is the upcoming American economic data. On Tuesday, the US will publish important numbers like consumer confidence, house price data, and housing starts. These numbers are important because the Fed has committed to being data-dependent. Analysts expect that the bank will hike by 0.25% in May followed by a strategic pause.

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USD/IDR technical analysis

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USD/IDR

USD/IDR chart by TradingView

On the daily chart, we see that the USD/IDR exchange rate has been in a strong bearish trend in the past few months. It has moved below the 50% Fibonacci retracement level. The pair has dropped below the 25-day and 50-day moving averages. This price is also important because it was the lowest point on February 1. 

Therefore, the outlook of the Indonesian rupiah is still bearish, with the next key level to watch being at 14,500. This view will be confirmed if the price moves below the key support level at 14,650, the lowest point on April 14.

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