USD/IDR: Why is the Indonesian rupiah in a freefall?

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on Apr 16, 2024
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  • The USD/IDR pair surged to its highest level on record.
  • The Bank of Indonesia intervened in the spot and futures market.
  • The Indonesian rupiah crashed because of the US dollar index.

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The Indonesian rupiah resumed its crash this week as emerging market currencies plunged against the greenback. The USD/IDR pair surged to a record high of 16,200 on Tuesday, its highest point on record. It has jumped by more than 10% from its lowest level in 2023.

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Indonesian rupiah crash continues

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The Indonesian rupiah has joined other emerging market currencies in a major sell-off against the US dollar this week.

Other popular currencies like the Philippine peso, Indian rupee, and Malaysian ringgit have all been in a deep dive this week.

The main reason for the Indonesian rupiah crash is that the US dollar has strengthened sharply this year. Data shows that the DXY index surged to over $106 on Wednesday, its highest point in months. 

This performance happened as investors reacted to the strong US inflation and jobs numbers. A report published this month revealed that the unemployment rate retreated to 3.8% as the economy created over 303k jobs.

Another report showed that the US inflation jumped to 3.5% while core CPI remained at 3.8% during the month. And on Monday, another report showed that retail sales continued rising in March even as inflation continued rising.

Therefore, the implication is that the Federal Reserve will likely not slash interest rates at a faster pace than expected. Some analysts believe that the bank will not slash rates after all.

Meanwhile, in Indonesia, inflation has remained inside the central bank’s target. It rose to a high of 2.8% in February and by 0.4% from the previous month. Therefore, there is a likelihood that the central bank will maintain a hawkish tone in the coming months.

The central bank has already started to intervene in the market to prevent further deterioration. It intervened in the spot and the derivatives market. Historically, central bank interventions tend to be short-lived.  In a statement, an analyst said:

“While we don’t think USD/IDR spot of 16,000 is a line in the sand for BI to hike rates, it still has a relatively high sensitivity to the risk of additional hawkish repricing in US rates.”

USD/IDR technical analysis

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USD/IDR

USD/IDR chart by TradingView

The USD/IDR exchange rate made a strong bullish breakout on Tuesday as the market reopened from the Idd holiday. As it jumped, it moved above the crucial resistance level at 15,961, its highest swing in October.

The pair has surged above the 50-day and 25-day Exponential Moving Averages (EMA), which is a bullish sign. At the same time, the Relative Strength Index (RSI) has jumped to the extreme overbought point of 80.

Therefore, the outlook for the pair is extremely bullish in the long term. However, in the near term, there is a likelihood that the pair will either retreat and retest the support at 15,961 or consolidate.

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