USD/IDR forecast ahead of Bank of Indonesia interest rate decision

The USD/IDR exchange rate wavered on Wednesday morning as investors reacted to the new trade deal between the United States and Indonesia, and as traders waited for the upcoming Bank of Indonesia central bank decision. It was trading at 16,316, up slightly from the June low of 16,000.

US and Indonesia trade deal

The USD to IDR exchange rate reacted to a new trade deal between the United States and Indonesia. In a statement, Donald Trump said that all goods entering the US from Indonesia would attract a 19% tariff, down from th 32% he had threatened. The US will pay zero or little tariffs to Indonesia.

The trade deal also had a clause on Indonesia boosting its purchases of American goods. In this, the country will buy goods, including energy and Boeing jets worth over $19 billion in the coming years.

This is a notable deal for four main reasons. First, it is the first deal the US struck after Trump started sending letters to countries earlier this month. 

Second, it provides a roadmap of what future deals with the US will be. In this, countries will likely be forced to buy US goods, especially Boeing jet to help narrow the trade deficit. 

Read more: Asian markets open: Nikkei flat, Kospi drops 0.5% after US House blocks crypto bills

Third, the deal means that the US will still increase tariffs on Indonesia and other countries over time. For example, in the past deals with countries like China and the UK, the US has maintained a 10% tariff. The average US tariff on Indonesian goods before this trade war was 5%.

Furthermore, the deal is notable because Indonesia considers the US its largest market. The two countries conducted trade worth $38.3 billion, with Indonesia selling goods worth $30 billion, resulting in a $ 8.3 billion deficit for the US.

Indonesia central bank decision ahead

The next key catalyst for the USD/IDR pair will be the upcoming Bank of Indonesia central bank decision. Economists expect the bank to cut the interest rates by 25 basis points to 5.25% and the deposit and lending facility rates to 4.5% and 6%. However, because of the deal, some analysts anticipate a pause. In a note, a Wells Fargo analyst said:

USD/IDR technical analysis

The daily chart shows that the USD/IDR exchange rate pulled back in the past few months. It plunged from a high of 17,122 to 16,300. Most recently, it has formed a mini-death cross as the 50-day and 100-day moving averages crossed each other. 

The pair will likely continue falling as sellers target the next key support at 16,000, the 50% Fibonacci Retracement level. 

Read more: Sensex, Nifty open muted on July 16 amid new US tariff threats, Fed remarks