USD/IDR: Rupiah on edge ahead of Fed and Indonesia rate decisions

The USD/IDR exchange rate moved sideways on Monday as investors waited for the upcoming Federal Reserve and Bank of Indonesia (BOI) interest rate decisions. The pair was trading at 15,021, which was higher than last week’s low of 14,904.

Fed and Bank of Indonesia divergence

The Indonesian rupiah retreated slightly as traders prepare for a divergence between the Fed and the Bank of Indonesia. The BoI will conclude its meeting on Tuesday morning. Analysts believe that the bank will decide to leave interest rates unchanged. 

Precisely, they expect the interest rate to remain at 5.75% while the deposit facility and lending facility rates at 5.0% and 6.50%, respectively. Most importantly, there is a likelihood that the bank will signal that it will cut interest rates later this year.

Recent numbers showed that the Indonesian economy is slowing. As I wrote here, the country’s exports and imports slumped in June as demand slowed. At the same time, Indonesia’s inflation slipped to 3.5%. There are also concerns that the country could go through a drought as El Nino takes shape.

On the other hand, the Federal Reserve is expected to hike interest rates when it includes its monetary policy meeting on Wednesday. Economists expect that the bank will hike by 0.25% and push rates to the highest level since 2001.

Most importantly, there is a possibility that the bank will signal the end of the hiking cycle since inflation has dropped and the economy is slowing. The most recent data showed that retail sales, housing starts, and building permits dropped in June.

USD/IDR technical analysis

USD/IDR chart by TradingView

The USD to Indonesian rupiah exchange rate has drifted upwards in the past few days. On the 4H chart, the pair has formed a bearish flag pattern, which is shown in orange. It has moved slightly below the 50-period and 25-period moving averages. The pair has also dropped below the key resistance level at 15,061, the highest point on July 20th.

Therefore, the USD to IDR exchange rate will likely have a bearish breakout as sellers target the next key support at 14,907. A move above the resistance at 15,061 will invalidate the bearish view.