USD/IDR analysis ahead of Bank of Indonesia rate decision

The Indonesian rupiah has been in a strong sell-off in the past few weeks as the US dollar strength remained and as concerns about its economy continued. The USD/IDR exchange rate soared to 16,004 last week, up by over 6% from its lowest point this year. 

Indonesia's central bank decision

The USD/IDR pair continued its uptrend after bottoming at 14,977 in October this year. This rally accelerated recently after Donald Trump election in the US, a move that could have an impact on the Indonesian economy. 

On the positive side, Trump has hinted that he will impose large tariffs on imported goods, especially those made in China.

These tariffs on China would likely benefit Indonesia, which has a friendlier trading relationship with the US. As such, there is a likelihood that some companies will diversify their manufacturing sites to the country. 

Still, a large-scale tariff escalation would also hurt Indonesia in the near term because the US is its second-largest trading partner, accounting for 11.2% of its exports. 

The next important catalyst for the USD/IDR this week will be the Bank of Indonesia interest rate decision scheduled on November 20. 

Analysts expect that the BoI will leave interest rates unchanged at 6% for the third consecutive time. Its recent rate cut came in September when it slashed the benchmark rate by 0.25% to supercharge the economy. 

Some analysts believe that the BoI will decide to slash interest rates in this meeting because the economy is slowing. 

The most recent economic data showed that the headline inflation continued tumbling in Indonesia. It dropped to 1.71% in October from 1.64% in the previous month. It has been in a strong downtrend after peaking at 5.95% in 2022. 

Another report showed that the economy slowed to 4.95% in the third quarter from 5.05% in the previous quarter. It dropped and missed the analysts' estimate of 5.0%. 

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

US dollar index rally

The USD/IDR exchange rate has also jumped because of the strong US dollar index, which has moved to $107, up from the year-to-date low of $100. 

This rally continued after Trump’s win, which some analysts believe will be inflationary because of some of his policies like deportations, tax cuts, and tariffs.

Just last week, Jerome Powell, the head of the Federal Reserve warned that the bank would be gradual when cutting rates. As such, investors anticipate that the bank will avoid cutting rates in December, and instead do it in the next meeting in January. 

USD/IDR technical analysis

USD/IDR chart by TradingView

The daily chart shows that the USD to IDR exchange rate has been in a strong bull run in the past few months. It has risen from a low of 14,980 in October to 15,860. 

The pair has rallied above the 50-day and 25-day Exponential Moving Averages (EMA). It has also formed a rising wedge chart pattern, a popular bearish sign. 

The USD/IDR exchange rate has moved between the 50% and 61.8% Fibonacci Retracement level. 

Therefore, the pair will likely remain in this range in the near term. More upside will be confirmed if the USD/IDR pair rallies above the important resistance level at 16,000. A move above that level will point to more gains, with the next level to watch being at 16,200, the 78.6% retracement level.