The USD/IDR exchange rate remained flat on Monday as investors awaited the upcoming interest rate decision from the Federal Reserve and Bank of Indonesia (BOI). The pair is trading at 15,021, higher than last week’s low of 14,904.
Divergence between Fed and Bank Indonesia
The Indonesian rupiah fell slightly as traders braced for a divergence between the Fed and Bank Indonesia. The central bank will end its meeting on Tuesday morning. Analysts expect the bank to decide to keep rates unchanged.
To be precise, we expect interest rates to remain at 5.75%, with deposit and lending facility rates of 5.0% and 6.50%, respectively. Most importantly, the bank could signal a rate cut later this year.
Recent statistics show that the Indonesian economy is slowing. As noted here, the country’s imports and exports were weak in June as demand slowed. At the same time, Indonesia’s inflation rate fell to 3.5%. There are also fears that the country may experience drought as the El Niño phenomenon gains momentum.
Meanwhile, the US Federal Reserve (Fed) is expected to raise interest rates, including at its monetary policy meeting on Wednesday. Economists expect the bank to raise rates by 0.25 percentage points, pushing interest rates to their highest level since 2001.
Most importantly, with inflation falling and the economy slowing, the central bank could signal the end of the rate hike cycle. The latest data showed retail sales, housing starts and construction permits fell in June.
USD/IDR Technical Analysis
The US dollar to Indonesian rupiah exchange rate has been on an upward trend over the past few days. On the 4H chart, the pair forms a bearish flag pattern shown in orange. It is trading just below the 50- and 25-period moving averages. The pair has also broken below important resistance at 15,061, the July 20th high.
Therefore, the USD to IDR exchange rate is likely to be a bearish breakout as sellers target the next critical support at 14,907. A move above the 15,061 resistance will invalidate our bearish view.
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