USD/IDR: Buyers dominate ahead of Bank Indonesia’s rate decision

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  • Sluggish fundamentals and trade pessimism favor no rate change and the pair’s further rise.
  • Overbought RSI can question buyers.

The USD/IDR pair trades near 14,540 during the early Asian session on Thursday. The pair buyers continue to remain in power ahead of rate decision from Bank of Indonesia (up at 07:30 GMT).

The quote yesterday rose to the highest in 19-weeks after April month trade data from Indonesia disappointed the buyers. Details suggested trade balance slipped to $-2.5 billion from +0.54 billion with exports and imports growth marking negative prints of -13.10% and -6.58% versus -10.01% and -6.76% respectively.

Additionally, pessimism surrounding global trade emanating from the US-China tariff war also acts as a negative catalyst to the Indonesian Rupiah (IDR).

Consensus signals that the Bank Indonesia (BI) will hold its benchmark rate unchanged at 6.0%.

TD Securities cite global risk tone and the IDR weakness as the main reasons for the BI to stand pat on today’s rate announcement.

Bank Indonesia left policy rates unchanged at its April meeting and we expect the same this month. We had thought that BI would open the door to a rate cut as early as May but there was no such forward guidance at the last meeting. Given the deterioration in global risk appetite and weakening in IDR since then, we think BI will remain on hold. Inflation remains low, but did surprise on the upside in April, while core CPI ticked higher, providing another reason to stay on hold.

Technical Analysis

Having breached 200-day simple moving average (SMA) level of 14,475, bulls can target 14,610 and December 2018 highs near 14, 650. 

Though, pair’s slip beneath 14,475 can recall March month high of 14,335 and 50% Fibonacci retracement level of its December 2018 to February 2019 decline near 14,280. 

It should also be noted that 14-day relative strength index (RSI) is signaling overbought conditions and might trigger the pair’s pullback in a case of surprise.

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