USD/IDR analysis as Indonesia inflation skids below BoI target

The USD/IDR exchange rate moved sideways on Monday after the latest Indonesian consumer inflation data. This price is about 2.47% above the lowest level this year and 4.8% below last year’s high. As a result, the Indonesian currency has done quite well considering that many emerging market currencies like the Chinese yuan and Turkish lira have all plunged.

Indonesia inflation falls

The biggest forex news on Monday was the latest Indonesian consumer inflation data. According to the country’s statistics agency, the headline consumer price index (CPI) dropped from 0.33% to 0.09% in May. This decline was better than the median estimate of 0.30%.

On a year-on-year basis, the country’s inflation dropped from 4.33% to 4%. Economists were expecting that the country’s inflation dropped to 4.23%. Inflation has been in a strong bearish trend after peaking at 5.95% in April 2022. Core inflation, which excludes the volatile food and energy products, dropped from 2.83% to 2.66%.

Therefore, there is a likelihood that the Bank of Indonesia will maintain its interest rates at the current level since it has moved to its target. In May, the bank decided to leave interest rates unchanged.

The USD/IDR exchange rate reacted to the latest Indonesian manufacturing data. According to Nikkei, the country’s manufacturing PMI dropped from 52.7 in April to 50.6 in May. While this was a decline, it is higher than that of other countries. Further, a PMI reading of 50 is a sign that an industry is doing well.

The outlook of the USD to IDR exchange rate for the week will be muted since there will be no major economic data this week. Traders will still focus on last week non-farm payrolls (NFP) data, which we wrote about here.

USD/IDR technical analysis

USD/IDR chart by TradingView

The daily chart shows that the USD to rupiah exchange rate has drifted upwards in the past few days. In this period, the pair has moved above the important resistance level at 14,838, the lowest level on February 2nd. 

The pair has jumped above the 50-day exponential moving average while the MACD has moved above the neutral point. Therefore, the pair will likely continue rising as buyers target the next key resistance point at 15,200. A move below the support at 14,840 will invalidate the bullish view.