USD/IDR: Rupiah on edge as Fed and Bank of Indonesia diverge

on Sep 21, 2023
  • The USD/IDR pair has been in a strong bullish trend in the past few months.
  • The Federal Reserve delivered a hawkish pause interest rate decision.
  • The Bank of Indonesia decided to slash rates by 0.25%.

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The USD/IDR exchange rate remained in a tight range as the Federal Reserve and Indonesia’s central bank diverged. The pair remained at 15,400, the highest level since March this year. It has soared by more than 5.10% from the lowest level this year.

Fed and Bank of Indonesia decisions

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The USD/IDR pair has been in a strong bullish trend after bottoming in May. This trend happened as the actions of the Federal Reserve and Bank of Indonesia diverged. 

The most recent data showed that Indonesia’s inflation has been in a downward trend, as I wrote here. In the US, however, numbers revealed that the headline inflation has risen in the past two straight months. US inflation rose by 3.7% in August, the highest level in months.

Therefore, the two central banks moved in different directions. The Fed decided to leave interest rates unchanged and pointed to another rate hike later this year. Investors believe that this was a hawkish pause.

The Fed is attempting to engineer a soft landing, where it brings inflation to the 2% target without causing a recession. Unfortunately, inflation in the country is moving in the wrong direction and the situation will likely get worse. 

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There are three key drivers for this. First, gasoline prices have jumped as the price of Brent crude has jumped to the highest level in more than 11 months. Gasoline is a major inflation driver.

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Second, a strike by auto workers is ongoing, which will likely new vehicle prices higher. Also, a traffic jam is happening at the Panama Canal which will ultimately lead to higher prices. 

Elsewhere, the Bank of Indonesia became the first major central bank to slash interest rates. It cut the deposit facility rate to 5.0% and the lending facility rate to 6.50%. The bank is working to stimulate an economy that is showing signs of slowing down.

USD/IDR technical analysis

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The daily chart shows that the USD to IDR exchange rate has been in a strong bullish trend in the past few months. It has formed an ascending channel shown in black. The pair has moved above the 50-day and 25-day moving averages. It has also moved above the important support level at 15,217 (July 10 high).

Therefore, the pair will likely continue rising as buyers target the key resistance point at 15,500, the upper side of the channel. 


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