USD/IDR extends reaction to Bank Indonesia’s fourth rate cut in a row

• USD/IDR holds on to recovery gains amid a lack of major catalysts.
• Bank Indonesia (BI) cited growth concerns while announcing the fourth rate cut on Thursday.

Following its largest gains in a month, backed by the BI’s rate cut, USD/IDR extends pullback from the monthly bottom while trading around 14,060 during Asian session on Friday.

The Bank Indonesia’s (BI) fourth rate cut in a row could be spotted as the main catalyst for the pair’s recovery on Thursday. The Indonesian central bank cut its 7-day reverse repurchase rate by 25 basis points (bps) to 5.00% while matching most market consensus. Also, headline rates concerning overnight deposit and lending facilities were trimmed by 25 bps to 4.25% and 5.75% respectively.

The governor, Perry Warjiyo, cited inflation and growth worries to be the top-tier reasons for the decision. The International Monetary Fund’s (IMF) downbeat growth outlook for Asia and on-going uncertainty surrounding US-China trade tension could also be considered playing their roles behind the BI’s action.

Also supporting the pair’s run-up was the overall US Dollar (USD) strength on the back of upbeat Purchasing Manager Index (PMI) data and market’s favor for the greenback amid sluggish signals from the European Central Bank (ECB) and political pessimism concerning the Brexit.

Prices are likely to rely mainly on the trade/political headlines amid a light economic calendar. Investors await China’s reaction to the United States’ (US) latest communication criticizing the dragon nation’s Human Rights records while also supporting Hong Kong protesters.

Technical Analysis

While 21-day Exponential Moving Average (EMA) around 14,110 acts as an immediate upside barrier, a daily closing beyond a 200-day EMA level of 14,200 will be a good sign for buyers. On the contrary, pair’s declines below 13,980 could recall September month low near 13,880.